Perrett Corporation has provided the following financial data: Year 2Year 1Total assets$1,470,000 $1,450,000 Total stockholders' equity$954,000 $920,000 Sales (all on account)$1,200,000 Gross margin$430,000 Interest expense$22,000 Income taxes (35%)$21,269 Net income$39,500 Required:a. What is the company's net profit margin percentage for Year 2?b. What is the company's gross margin percentage for Year 2?c. What is the company's return on total assets for Year 2?d. What is the company's return on equity for Year 2?
What will be an ideal response?
| a. | Net profit margin percentage = Net income ÷ Sales |
b. Gross margin percentage = Gross margin ÷ Sales
= $430,000 ÷ $1,200,000 = 35.8% (rounded)
c. Return on total assets = Adjusted net income* ÷ Average total assets**
= $53,800 ÷ $1,460,000 = 3.68% (rounded)
*Adjusted net income = Net income + [Interest expense × (1 - Tax rate)]
= $39,500 + [$22,000 × (1 - 0.35)] = $53,800
**Average total assets = ($1,470,000 + $1,450,000) ÷ 2 = $1,460,000
d. Return on equity = Net income ÷ Average stockholders' equity*
= $39,500 ÷ $937,000 = 4.22% (rounded)
*Average stockholders' equity = ($954,000 + $920,000) ÷ 2 = $937,000
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