Income Statement Classifications Simon Hardware and Garfunkel Foods Are Sole Proprietorships with Similar

question 33

Essay

Income statement classifications
Simon Hardware and Garfunkel Foods are sole proprietorships with similar amounts of total assets. Also, both businesses earn similar amounts of revenue, incur similar amounts of operating expenses, and report similar profits. However, Simon has a higher cost of goods sold, while Garfunkel Foods has higher interest expense.
Indicate which of these companies has the higher (a) gross profit rate, and (b) return on assets. In each case, explain the reasons for each answer.

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Definitions:

Emissions Tax

A tax imposed on the emission of pollutants, aimed at reducing environmental harm.

Optimal Tax

A tax system designed to achieve the best balance between efficiency and equity.

Marginal Social Benefit

The supplementary gain for society derived from the consumption of one extra unit of a good or service.

Marginal Social Cost

The cost to society of producing an additional unit of a good or service, including both private costs and any externalities.