Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Plant & equipment, net
$180
210
130
50
570
1,540
$180
180
120
50
530
1,480
Total assets $2,110 $2,010
Current liabilities:
Accounts payable
Accrued liabilities
Notes payable, short term
Total current liabilities
Noncurrent liabilities:
Bonds payable
Total liabilities
Stockholders’ equity:
Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital–common stock
Retained earnings
Total stockholders’ equity
Total liabilities & stockholders’ equity
$100
60
90
250
480
730
120
180
240
840
1,380
$2,110
$130
60
120
310
500
810
120
180
240
660
1,200
$2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income $2,760
1,930
830
330
500
50
450
135
$315
Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.
5. Larkins Company’s return on total assets for Year 2 was closest to:
A. 13.6%.
B. 16.0%.
C. 15.3%.
D. 17.0%.
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