The Following Selected Data Were Taken from the Financial Statements

question 83

Essay

The following selected data were taken from the financial statements of the Winter Group for the three most recent years of operations:
$\begin{array}{|l|r|r|r|}\hline&\text { Dec. 31, } &\text { Dec. 31, }&\text { Dec. 31, }\\&\text { Year 3 }&\text { Year 2 }&\text { Year 1 }\\\hline \text { Total assets } & \$ 3,000,000 & \$ 2,700,000 & \$ 2,400,000 \\\hline \text { Notes payable } 10 \% \text { interest } & 1,000,000 & 1,000,000 & 1,000,000 \\\hline \text { Common stock } & 400,000 & 400,000 & 400,000 \\\hline \text { Preferred } \$ 6 \text { stock, } \$ 100 \text { par } & 200,000 & 200,000 & 200,000 \\\hline \text { Retained earnings } & 1,126,000 & 896,000 & 600,000 \\\hline\end{array}$ The Year 3 net income was $242,000 and the Year 2 net income was $308,000.No dividends on common stock were declared during the 3 years.
a. Determine the rate earned on assets,the rate earned on stockholders' equity,and the rate earned on common stockholders' equity for Years 2 and 3.Round to one decimal place.
b. What conclusion can be drawn from these data as to the company's profitability?

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Definitions:

Progressivity

A characteristic of a tax system in which the tax rate increases as the taxable amount increases, placing a larger burden on high-income earners.

Federal Payroll Tax

Taxes imposed by the federal government on the wages of employees, which fund social security and Medicare programs.

Equilibrium Price

The value at which there is a perfect match between how much of a good or service is wanted and how much is provided, leading to a state of market equilibrium.

Equilibrium Quantity

The quantity of goods or services supplied and demanded at the equilibrium price, where the quantity supplied equals the quantity demanded.