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19 May, 15:50

O'reilly beverage company reported net income of $690,000 for 2016. in addition, the company deferred a $60,000 pretax loss on derivatives and had pretax net unrealized holding gains on investment securities of $30,000. the company's income tax rate is 40%. how much is o'reilly's comprehensive income for 2016?

a. $660,000

b. $396,000

c. $720,000

d. $672,000 30. in the dupont formula, return on assets equals:

a. gross margin on sales * inventory turnover

b. profit margin on sales * inventory turnover

c. equity multiplier * asset turnover ratio

d. profit margin on sales * asset turnover ratio

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Answers (1)
  1. 19 May, 17:22
    0
    O'reilly's Income statement:

    Net Income reported = 690,000

    Loss on derivatives net of tax = 60,000 * (1-0.4) = (36,000)

    Unrealized holding gain, net of tax = 30,000 * (1-0.4) = 18,000

    Total other comprehensiveness income (loss) = (36000) + 18,000 = (18,000)

    Comprehensive income = 690,000 - (18,000) = 672,000

    O'reilly's comprehensive income for 2016 = $672,000

    Question 2:

    In Du-pont formula

    Return on assets = Profit margin on sales * Asset turnover ratio

    (Explanation : Profit margin * Asset turnover ratio = Net Income/Total Sales * Total Sales / Total assets = Net income/total assets = Return on Assets)
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