what was houston manufacturing company rsquo s return on stockholders rsquo equity f 563063

Comprehensive: Income Statement and Retained Earnings The Houston Manufacturing Company presents the following partial list of account balances, after adjustments, as of December 31, 2007:

Sales salaries expense

$27,400

Miscellaneous administrative expenses

3,000

Sales returns

5,000

Sales

468,200

Interest revenue

3,200

Office and administrative salaries

30,000

Delivery expenses

11,700

Loss on sale of factory equipment (pretax)

4,100

Cost of goods sold

232,200

Sales personnel travel expenses

$8,300

Property taxes and insurance expense

9,000

Retained earnings, January 1, 2007

200,800

Depreciation expense: sales equipment

9,000

Advertising expense

15,700

Miscellaneous rent revenue

5,900

Common stock, $10 par

200,000

Depreciation expense: buildings and office equipment

14,400

The following information is also available but is not reflected in the preceding accounts:

1. The company sold Division E (a component of the company) on August 1, 2007. During 2007, Division E had incurred a pretax loss from operations of $16,000. However, because the acquiring company could vertically integrate Division E into its facilities, the Houston Manufacturing Company was able to recognize a $42,000 pretax gain on the sale.

2. On January 2, 2007, without warning, a foreign country expropriated a factory of Houston Manufacturing Company, which had been operating in that country. As a result of that expropriation, the company has incurred a pretax loss of $30,000.

3. In preparing its 2007 adjusting entries at year end, the company discovered that it had not recorded $10,100 of depreciation on its office building during 2006. This error did not affect the 2007 depreciation expense.

4. The common stock was outstanding for the entire year. A cash dividend of $1.20 per share was declared and paid in 2007.

5. The 2007 income tax expense totals $28,020 and consists of the following:

Tax expense on income from continuing operations

$32,250

Tax credit on Division E operating loss

4,800

Tax expense on gain from sale of Division E

12,600

Tax credit on loss from expropriation

9,000

Tax credit on 2006 depreciation error

3,030

$28,020

Required

1. As supporting documents for Requirement 2, prepare separate supporting schedules for selling expenses and for general and administrative expenses (include depreciation expense where applicable in these schedules).

2. Prepare a 2007 multiple step income statement for the Houston Manufacturing Company.

3. Prepare a 2007 retained earnings statement.

4. What was Houston Manufacturing Company’s return on stockholders’ equity for 2007 if its average stockholders’ equity during 2007 was $500,000? What is your evaluation of this return on stockholders’ equity if its “target” for 2007 was 15%?

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