CHAPTER 2 – Solutions to Assignment Problems

Assignment 2.1:
a.

b. Net profit margin = net income/net sales = 118,290/452,510 = 26.14%
c. Accumulated depreciation = 212,820 + 12,510 = $225,330.

Assignment 2.2:
a.

b. Assume for this problem that the number given for Net income is actually Net income available to common stockholders (that is, reported Net income minus preferred dividends). Thus, Annual addition to Retained earnings = Net income available to common stockholders – Common stock dividends paid.
Thus, Common stock dividends paid = Net income – Addition to (i.e., change in) Retained earnings. Common stock dividends paid = 25,400 – (89,280 – 79,880) = 16,000.

Dividends per share = Dividends divided by number of shares outstanding.
Number of shares outstanding = Common Stock divided by par value per share
= 60,000/.20 = 300,000.

Dividends per share = $0.053 or 5.3 cents per share.

c. Cash spent on new plant and equipment = Depreciation for the year as listed on the income statement plus the change in net fixed assets.
Thus, Cash spent on fixed assets in 1999 = 10,260 + (202,640 – 184660) = $28,240.

Assignment 2.3:
1. $4,055,740
$4,100,144
Although Gross sales decreased by 2 percent, net sales (the only number reported) show an increase of 1.1 percent. Since Returns and allowances are estimates made by management, there is some chance that the growth in sales conclusion may be misleading.

2. Cost of goods sold = Beginning inventory + Purchases – Ending inventory.
a. $174,300
b. $218,500
3. First solve for accumulated depreciation: 2005 2006
Gross fixed assets 3,200,000 4,620,000
Less Accumulated depreciation (1,280,000) (1,540,000)
Net fixed assets 1,920,000 3,080,000

Depreciation expense = change in accumulated depreciation = $260,000.

CHAPTER 2 – Answers