Rio Imports
Information from the Financial Statements Is Provided in the Following

question 143

Multiple Choice

Rio Imports
Information from the financial statements is provided in the following table:
$\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\\text { Current liabilities } & \$ 460,000 & \$ 320,000 \\\text { Long-term liabilities } & 240,000 & 640,000 \\\text { Shareholders' equity } & 840,000 & 1,080,000 \\\text { Net cash flows from operating activities } & 160,000 & 102,000 \\\text { Interest and principal payments } & 24,000 & 16,000 \\\text { Net sales } & 950,000 & 900,000 \\\text { Net income } & 180,000 & 144,000 \\\text { Interest expense } & 17,000 & 23,000 \\\text { Income taxes } & 32,000 & 29,000 \\\text { Dividends paid to common shareholders } & 30,000 & 60,000\end{array}$
-Refer to the figure Rio Imports.What does the operating margin percentage for Year 2 indicate about this company?

• A) The company has not been effective enough in its purchasing, production, pricing, and marketing activities.
• B) The company has increased its profits by $33,000.
• C) The company has improved profitability in relation to sales.
• D) The company's net income is more than it would have been if dividends of $30,000 had been paid.

---

Definitions:

Debit

A transaction recorded in accounting that leads to a rise in a company's assets or a reduction in its liabilities on the balance sheet.

Credit

An accounting entry that increases liabilities or equity, or decreases an asset or expense account, on a company's balance sheet.

Posting Reference

An identifier used in journals and ledgers to link transactions, facilitating tracking and cross-referencing between the two records.

Two-Column Journal

A financial journal that has a simple format with only a debit and a credit column for recording transactions.