Presented here are the comparative balance sheets of Hames, Inc., at December 31
ID: 2329664 • Letter: P
Question
Presented here are the comparative balance sheets of Hames, Inc., at December 31, 2017 and 2016. Sales for the year ended December 31, 2017, totaled $600,000.
Required:
a. Calculate ROI for 2017. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
b. Calculate ROE for 2017. (Round your answer to 1 decimal place.)
c. Calculate working capital at December 31, 2017.
d. Calculate the current ratio at December 31, 2017. (Round your answer to 2 decimal places.)
e. Calculate the acid-test ratio at December 31, 2017. (Round your answer to 2 decimal places.)
Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $ 22,000 $ 19,000 Accounts receivable 78,000 72,000 Merchandise inventory 103,000 99,000 Total current assets $ 203,000 $ 190,000 Land 50,000 40,000 Plant and equipment 125,000 110,000 Less: Accumulated depreciation (65,000 ) (60,000 ) Total assets $ 313,000 $ 280,000 Liabilities Short-term debt $ 18,000 $ 17,000 Accounts payable 65,200 75,000 Other accrued liabilities 20,000 18,000 Total current liabilities $ 103,200 $ 110,000 Long-term debt 22,000 30,000 Total liabilities $ 125,200 $ 140,000 Stockholders’ Equity Common stock, no par, 100,000 shares authorized
40,000 and 25,000 shares issued, respectively $ 74,000 $ 59,000 Retained earnings: Beginning balance $ 81,000 $ 85,000 Net income for the year 52,800 1,000 Dividends for the year (20,000 ) (5,000 ) Ending balance $ 113,800 $ 81,000 Total stockholders’ equity $ 187,800 $ 140,000 Total liabilities and stockholders’ equity $ 313,000 $ 280,000
Explanation / Answer
a. Return on investment = Net income / Average total assets
= $52800 / ($280000 + $313000)/2
= $52800 / $296500
= 17.81%.
b. Return on equity = Net income / average shareholders equity
= $52800 / ($140000 + $187800)/2
= $52800 / $163900
= 32.21%.
c. Working capital = Current assets - current liabilities
= $203000 - $103200
= $99800.
d. Current ratio = Current assets / Current liabilities
= $203000 / $103200
= 1.97 times
e. Acid test ratio = (Current assets - inventory) / current liabilities
= ($203000 - $103000) / $103200
= 0.97 times.