The Bedford Corporation reported the following income statement and balance sheet amounts and additional information for the end of the current year. Inventory and prepaid expenses account for $30,000 of the current year's current assets.
Average inventory for the current year is $36,250.
Average net accounts receivable for the current year is $45,000.
There are 35,000 shares of common stock outstanding.
Total dividends paid during the current year were $17,000.
The market price per share of common stock is $20.
What is the rate of return on net sales for the current year?

Question

The Bedford Corporation reported the following income statement and balance sheet amounts and additional information for the end of the current year.  Inventory and prepaid expenses account for $30,000 of the current year's current assets.
Average inventory for the current year is $36,250.
Average net accounts receivable for the current year is $45,000.
There are 35,000 shares of common stock outstanding.
Total dividends paid during the current year were $17,000.
The market price per share of common stock is $20.
What is the rate of return on net sales for the current year?

Quizplus · Accepted Answer

To calculate the rate of return on net sales, we can use the following formula: 
Net Income / Net Sales 
First, we need to calculate the net income by subtracting total expenses from total revenue: 
Net Income = Total Revenue - Total Expenses 
Net Income = $185,000 - $140,000 
Net Income = $45,000

Next, we need to calculate net sales by subtracting the cost of goods sold from total revenue: 
Net Sales = Total Revenue - Cost of Goods Sold 
Net Sales = $185,000 - ($120,000 - $30,000) 
Net Sales = $95,000

Now we can calculate the rate of return on net sales: 
Rate of Return on Net Sales = Net Income / Net Sales 
Rate of Return on Net Sales = $45,000 / $95,000 
Rate of Return on Net Sales = 0.473... 
Round up to the nearest hundredth 
Rate of Return on Net Sales = 0.47

Therefore, the answer is C (0.14).

The Bedford Corporation Reported the Following Income Statement and Balance