Reference: 13-08
Financial Statements for Oratz Company Appear Below:
Oratz

question 26

Multiple Choice

Reference: 13-08
Financial statements for Oratz Company appear below:
Oratz Company
Balance Sheet
December 31, 20X6 and 20X5
(dollars in thousands) $\begin{array}{|l|l|l|}\hline & 20 X 6 & 20 X 5 \\\hline \text { Current assets: } & & \\\hline \text { Cash and marketable securities } & \$ 150 & \$ 150 \\\hline \text { Accounts receivable, net } & 130 & 130 \\\hline \text { Inventory } & 180 & 180 \\\hline \text { Prepaid expenses } & {30} &{30} \\\hline \text { Total current assets } & 490 & 490 \\\hline \text { Noncurrent assets: } & & \\\hline \text { Plant \& equipment, net } & {1,430} & 1,370 \\\hline \text { Total assets } & \underline{\$ 1,920} & \underline{\$ 1,860} \\\hline & & \\\hline \text { Current liabilities: } & & \\\hline \text { Accounts payable } & \$ 70 & \$ 100 \\\hline \text { Accrued liabilities } & 100 & 70 \\\hline \text { Notes payable, short term } & 230 & 220 \\\hline \text { Total current liabilities } & 400 & 390 \\\hline \text { Noncurrent liabilities: } & & \\\hline \text { Bonds payable } & 300 & 300 \\\hline \text { Total liabilities } & 700 & 690 \\\hline \text { Shareholders' equity: } & & \\\hline \text { Preferred shares, \$10 par, 5\% } & 120 & 120 \\\hline \text { Common shares, \$15 par } & 140 & 140 \\\hline \text { Additional paid-in capital--common shares } & 240 & 240 \\\hline \text { Retained earnings } & 720 & 670 \\\hline \text { Total shareholders' equity } & \underline{1,220} & \underline{1,170} \\\hline \text { Total liabilities \& shareholders' equity } & \underline{\$ 1,920} & \underline{\$ 1,860} \\\hline\end{array}$ Oratz Company
Income Statement
For the Year Ended December 31, 20X6 (dollars in thousands) $$\begin{array} { | l | r | } \hline \text { Sales (all on account) } & \$ 1,630 \\\hline \text { Cost of goods sold } & 1,140 \\\hline \text { Gross margin } & 490 \\\hline \text { Operating expenses } & 190 \\\hline \text { Net operating income } & 300 \\\hline \text { Interest expense } & 30 \\\hline \text { Net income before taxes } & 270 \\\hline \text { Income taxes (30\%) } & 81 \\\hline \text { Net income } & \$ 189 \\\hline\end{array}$$ Dividends during 20X6 totalled $139 thousand, of which $6 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $260.
-Selected financial data for Irvington Company appear below: $$\begin{array} { | l | l | l | } \hline & \text { Account Balances } & \\\hline & \text { End of year } & \text { Beginning of year } \\\hline \text { Preferred shares } & \$ 125,000 & \$ 125,000 \\\hline \text { Common shares } & \$ 400,000 & \$ 300,000 \\\hline \text { Retained earnings } & \$ 185,000 & \$ 75,000 \\\hline\end{array}$$ During the year, the company paid dividends of $10,000 on its preferred shares. The company's net income for the year was $120,000. The company's return on common shareholders' equity for the year is closest to:

• A)19%.
• B)17%.
• C)23%.
• D)25%.

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