Q30PGB - Horngren'S Financial And Managerial Accounting

Question

Net sales revenue, net income, and commonA stockholders’ equity for Azbel Mission Corporation, a manufacturer of contact lenses, follow for a four-year period.

Requirements

1. Compute trend analyses for each item for 2017–2019. Use 2016 as the base year,and round to the nearest whole percent.

2. Compute the rate of return on common stockholders’ equity for 2017–2019, rounding to three decimal places.

Step-by-Step Solution

Answer

(1) Trend analysis is shown in Step 1. 

(2) The return on common Stockholder’s equity for the year 2017,2018 and 2019 are 12.460%, 11.940% and 16.714% respectively

 

Step1: Computation of Trend

Compute the trend analysis for 2017-19 asfollows:

	Base Year 2016	2017	2018	2019
Net Sales Revenue	$659,000	$639,000	$701,000	$758,000
Trend %		97%	106%	115%
Net Income Trend	$42,000	$39,000	$40,000	$59,000
Trend %		93%	95%	140%

 

Step 2:Calculation the Rate of return on common stockholders' equity ratio for the years 2017 and 2018 as follows:

 

	2017	2018	2019
Net Income	39,000	40,000	59,000
Beginning Common Stockholder’s equity	302,000	324,000	346,000
Ending Common Stockholder’s equity	324,000	346,000	360,000
Average Common Stockholder’s equity	313,000	335,000	353,000
Return on Common Stockholder’s equity	$39,000/313,000 =12.460%	$40,000/335,000 =11.940%	$59,000/353,000 =16.714%