ollowing are selected data from year$-$end financial statements of Lima Corporation for its first two years of operations.

Year $2$Year $1$Total assets$$3,895,000$$$3,260,000$Long$-$term liabilities$625,000680,000$Net income$532,055486,500$Sales$4,829,6253,940,000$Stockholders$$ equity$2,766,6862,553,864$

REQUIRED

a$.$ Compute the following performance measurement ratios for the second year of operations.

Answer $1$Average long$-$term liabilitiesAverage stockholders' equityAverage total assetsNet incomeSales$$Answer $2$Average long$-$term liabilitiesAverage stockholders' equityAverage total assetsNet incomeSales$=$Asset TurnoverAnswer $3$Answer $4=$

Answer $5$Average long$-$term liabilitiesAverage stockholders' equityAverage total assetsNet incomeSales$$Answer $6$Average long$-$term liabilitiesAverage stockholders' equityAverage total assetsNet incomeSales$=$Return on SalesAnswer $7$Answer $8=$

Answer $9$Average long$-$term liabilitiesAverage stockholders' equityAverage total assetsNet incomeSales$$Answer $10$Average long$-$term liabilitiesAverage stockholders' equityAverage total assetsNet incomeSales$=$Return on AssetsAnswer $11$Answer $12=$

Answer $13$Average long$-$term liabilitiesAverage stockholders' equityAverage total assetsNet incomeSales$$Answer $14$Average long$-$term liabilitiesAverage stockholders' equityAverage total assetsNet incomeSales$=$Return on EquityAnswer $15$Answer $16=$

b$.$ Decompose the second year return on equity into its DuPont components of return on sales, asset turnover, and financial leverage. Demonstrate how the product of the components is equal to the return on equity.

Answer $17$Average long$-$term liabilitiesAverage stockholders' equityAverage total assetsNet incomeSales$$Answer $18$Average long$-$term liabilitiesAverage stockholders' equityAverage total assetsNet incomeSales$=$Financial LeverageAnswer $19/$Answer $20=$

Return on SalesAsset TurnoverFinancial LeverageReturn on Equityxx$=$

c$.$ Is Lima Company using financial leverage? If so$,$ is the leverage favorable or unfavorable? Explain. Lima Company Answer $21$isis not using financial leverage. The leverage is Answer $22$favorableunfavorable because the return on equity is Answer $23$greaterless than the return on assets.