Simon Company’s year-end balance sheets follow. At December 31 Current Yr 1 Yr Ago 2 Yrs Ago Assets Cash $ 30,200 $ 35,250 $ 37,000 Accounts receivable, net 88,400 62,000 49,000 Merchandise inventory 111,000 81,200 53,500 Prepaid expenses 10,800 9,300 4,800 Plant assets, net 280,000 254,000 225,000 Total assets $ 520,400 $ 441,750 $ 369,300 Liabilities and Equity Accounts payable $ 129,200 $ 75,500 $ 51,200 Long-term notes payable secured by mortgages on plant assets 96,000 100,750 81,800 Common stock, $10 par value 163,000 163,000 163,000 Retained earnings 132,200 102,500 73,300 Total liabilities and equity $ 520,400 $ 441,750 $ 369,300 The company’s income statements for the Current Year and 1 Year Ago, follow. For Year Ended December 31 Current Yr 1 Yr Ago Sales $ 725,000 $ 550,000 Cost of goods sold $ 449,500 $ 341,000 Other operating expenses 232,000 126,500 Interest expense 11,200 13,000 Income tax expense 9,350 8,525 Total costs and expenses 702,050 489,025 Net income $ 22,950 $ 60,975 Earnings per share $ 1.41 $ 3.74 For both the Current Year and 1 Year Ago, compute the following ratios: (3-a) Return on total assets. (3-b) Based on return on total assets, did Simon's operating efficiency improve or worsen in the Current Year versus 1 Year Ago?

Simon Company

a) Return on total assets:

For Year Ended December 31, Current Yr       1 Yr Ago

Return on total assets =           4.41%               $13.8%

b) Based on the return on total assets, Simon's operating efficiency worsened in the Current Year versus 1 Year Ago because ROA reduced from 13.8% to 4.41%.

Explanation:

a) Data and Calculations:

Simon Company’s year-end balance sheets follow.

At December 31             Current Yr       1 Yr Ago      2 Yrs Ago

Assets

Cash                               $ 30,200       $ 35,250       $ 37,000

Accounts receivable, net 88,400           62,000          49,000

Merchandise inventory    111,000            81,200          53,500

Prepaid expenses             10,800             9,300            4,800

Plant assets, net            280,000        254,000        225,000

Total assets                $ 520,400      $ 441,750     $ 369,300

Liabilities and Equity

Accounts payable       $ 129,200       $ 75,500       $ 51,200

Long-term notes payable secured by mortgages

  on plant assets            96,000          100,750          81,800

Common stock,

$10 par value               163,000          163,000       163,000

Retained earnings        132,200          102,500        73,300

Total liabilities and

  equity                    $ 520,400        $ 441,750  $ 369,300

The company’s income statements for the Current Year and 1 Year Ago, follow.

For Year Ended December 31, Current Yr       1 Yr Ago

Sales                                         $ 725,000     $ 550,000

Cost of goods sold                  $ 449,500      $ 341,000

Other operating expenses        232,000         126,500

Interest expense                            11,200           13,000

Income tax expense                      9,350             8,525

Total costs and expenses        702,050         489,025

Net income                              $ 22,950        $ 60,975

Earnings per share                      $ 1.41              $ 3.74

Return on Total Assets:

For Year Ended December 31, Current Yr       1 Yr Ago

Net income                              $ 22,950        $ 60,975

Total assets                           $ 520,400       $ 441,750

Return on total assets =           4.41%               $13.8%

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