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The answer to Return on total assets

Question 36: Financial statements for Lardy Company appear below:

Lardy Company
Balance Sheet
December 31, Year 2 and Year 1
(dollars in thousands)
Year 2 Year 1
Current assets:
Cash and marketable securities $ 166 $ 174
Accounts receivable, net 226 182
Inventory 190 188
Prepaid expenses 40 20
Total current assets 622 564
Noncurrent assets:
Plant & equipment, net 1,660 1,740
Total assets $2,282 $2,304

Current liabilities:
Accounts payable $ 104 $ 124
Accrued liabilities 74 60
Notes payable, short term 110 130
Total current liabilities 288 314
Noncurrent liabilities:
Bonds payable 354 376
Total liabilities 642 690
Stockholders' equity:
Preferred stock, $20 par, 10% 100 100
Common stock, $10 par 100 100
Additional paid-in capital-common stock 140 140
Retained earnings 1,300 1,274
Total stockholders' equity 1,640 1,614
Total liabilities & stockholders' equity $2,282 $2,304

Lardy Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account) $2,090
Cost of goods sold 1,350
Gross margin 740
Selling and administrative expense 150
Net operating income 590
Interest expense 20
Net income before taxes 570
Income taxes (30%) 171
Net income $399

Dividends during Year 2 totaled $156,000 of which $10,000 were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $200.

Lardy Company's return on total assets for Year 2 was closest to:

18.9%
16.8%
18%
19.5%

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Solution Summary

The answer contains the computation of return on total assets both on the basis of EBIT and Net income when the balance sheet and Income statement are given

$2.19