Answer To Accounting Question IFS Test No 2 On Interpretation of Financial Statements

Answer to Accounting Test Question IFS No 2:

1(a) Profit margin on sales

= Net Income/ Net Sales

= $340,000/$7,050,000

= 4.8%

1(b) Return on Assets (ROA)

= Net Income/(Average Total Assets)/2

=$340,000/($4,430,000+3,990,000)/2

= 8.1%

1(c) Return on Shareholders’ equity

= Net Income/ (Average Total Shareholder fund)/2

=$340,000/($3,170,000+2,360,000)/2

=12.3%

(1) Computation of Dividend paid during Year 2005:

Retained earnings beginning of year 2005 $860,000

Add: Net Income $340,000

Less: Retained earnings end of year 2005 ($970,000)

Dividends paid during 2005 $230,000