Pribyl Corporation has provided the following financial data: Year 2Year 1Total assets$1,476,000 $1,450,000 Total stockholders' equity$1,013,000 $1,000,000 Income StatementFor the Year Ended December 31, Year 2Sales (all on account)$1,270,000 Cost of goods sold 720,000 Gross margin 550,000 Operating expenses 506,846 Net operating income 43,154 Interest expense 17,000 Net income before taxes 26,154 Income taxes (35%) 9,154 Net income$17,000 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
= $17,000 ÷ $1,270,000 = 1.3% (rounded)
b.
Gross margin percentage = Gross margin ÷ Sales
= $550,000 ÷ $1,270,000 = 43.3% (rounded)
c.
Return on total assets = Adjusted net income* ÷ Average total assets**
= $28,050 ÷ $1,463,000 = 1.92% (rounded)
*Adjusted net income = Net income + [Interest expense × (1 - Tax rate)]
= $17,000 + [$17,000 × (1 - 0.35)] = $28,050
**Average total assets = ($1,476,000 + $1,450,000) ÷ 2 = $1,463,000
d.
Return on equity = Net income ÷ Average stockholders' equity*
= $17,000 ÷ $1,006,500 = 1.69% (rounded)
*Average stockholders' equity = ($1,013,000 + $1,000,000) ÷ 2 = $1,006,500
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