Question

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

Answer 1

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)