Refer to the information provided for Plasma Screens Corporation in E12–7.

Required:

1. Calculate the following profitability ratios for 2021:

a. Gross profit ratio.

b. Return on assets.

c. Profit margin.

d. Asset turnover.

e. Return on equity.

2. When we compare two companies, can one have a higher return on assets while the other has a higher return on equity? Explain your answer.

E12–7

The balance sheets for Plasma Screens Corporation and additional information are provided below.

Additional Information for 2021:

1. Net income is $184,000.

2. Sales on account are $1,890,000.

3. Cost of goods sold is $1,394,250.

Transcribed Image Text:

PLASMA SCREENS CORPORATION Balance Sheets December 31, 2021 and 2020 2021 2020 Assets Current assets: Cash $ 242,000 $ 130,000 Accounts receivable 98,000 102,000 Inventory 105,000 90,000 Investments 5,000 3,000 Long-term assets: Land 580,000 580,000 Equipment 890,000 770,000 (528,000) $1,392,000 Less: Accumulated depreciation (368,000) $1,307,000 Total assets Liabilities and Stockholders' Equity Current liabilities: $ 109,000 Accounts payable Interest payable Income tax payable Long-term liabilities: Notes payable Stockholders' equity: $ 95,000 7,000 13,000 9,000 6,000 110,000 220,000 Common stock 800,000 800,000 Retained earnings 357,000 $1,392,000 173,000 $1,307,000 Total liabilities and stockholders' equity