15 continue.. Headland Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Headland and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2021, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,320 notes, which are due on June 30, 2021, and September 30, 2021. Another note of $5,940 is due on March 31, 2022, but he expects no difficulty in paying this note on its due date. Brown explained that Headland’s cash flow problems are due primarily to the company’s desire to finance a $302,050 plant expansion over the next 2 fiscal years through internally generated funds.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Return on assets
 
enter the return on assets in percentages rounded to 2 decimal places
%  
enter the return on assets in percentages rounded to 2 decimal places
%

 

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Headland Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Headland and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2021, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,320 notes, which are due on June 30, 2021, and September 30, 2021. Another note of $5,940 is due on March 31, 2022, but he expects no difficulty in paying this note on its due date. Brown explained that Headland’s cash flow problems are due primarily to the company’s desire to finance a $302,050 plant expansion over the next 2 fiscal years through internally generated funds.

The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.

Headland Corporation
Balance Sheet
March 31
Assets  
2021
 
2020
Cash
  $18,130   $12,400
Notes receivable
  148,340   132,610
Accounts receivable (net)
  132,970   125,610
Inventories (at cost)
  105,280   49,700
Plant & equipment (net of depreciation)
  1,442,810   1,431,850
    Total assets
  $1,847,530   $1,752,170
         
Liabilities and Owners’ Equity        
Accounts payable
  $78,630   $90,790
Notes payable
  76,580   61,850
Accrued liabilities
  18,110   29,430
Common stock (130,000 shares, $10 par)
  1,289,230   1,290,910
Retained earningsa
  384,980   279,190
    Total liabilities and stockholders’ equity
  $1,847,530   $1,752,170
         
aCash dividends were paid at the rate of $1 per share in fiscal year 2020 and $2 per share in fiscal year 2021.

 

Headland Corporation
Income Statement
For the Fiscal Years Ended March 31
   
2021
 
2020
Sales revenue
  $3,007,270   $2,709,810
Cost of goods solda
  1,522,790   1,432,430
Gross margin
  1,484,480   1,277,380
Operating expenses
  860,800   775,260
Income before income taxes
  623,680   502,120
Income taxes (40%)
  249,472   200,848
Net income
  $374,208   $301,272
         
aDepreciation charges on the plant and equipment of $100,160 and $103,110 for fiscal years ended March 31, 2020 and 2021, respectively, are included in cost of goods sold.


(a)

Compute the following items for Headland Corporation. (Round answers to 2 decimal places, e.g. 2.25 or 2.25%.)

1.   Current ratio for fiscal years 2020 and 2021.
2.   Acid-test (quick) ratio for fiscal years 2020 and 2021.
3.   Inventory turnover for fiscal year 2021.
4.   Return on assets for fiscal years 2020 and 2021. (Assume total assets were $1,694,460 at 3/31/19.)
5.   Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2020 to 2021.

 

 

5.  
Percent Changes
 
Percent Increase
   
Sales revenue
 
enter percentages rounded to 2 decimal places
%
   
Cost of goods sold
 
enter percentages rounded to 2 decimal places
%
   
Gross margin
 
enter percentages rounded to 2 decimal places
%
   
Net income after taxes
 
enter percentages rounded to 2 decimal places
%
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