Presented here are the comparative balance sheets of Hames, Inc., at December 31
ID: 2431641 • 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 $670,000.
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.)
HAMES, INC.,Balance Sheets
December 31, 2017 and 2016 2017 2016 Assets Cash $ 20,000 $ 20,000 Accounts receivable 78,000 72,000 Merchandise inventory 103,000 99,000 Total current assets $ 201,000 $ 191,000 Land 50,000 40,000 Plant and equipment 125,000 110,000 Less: Accumulated depreciation (65,000 ) (60,000 ) Total assets $ 311,000 $ 281,000 Liabilities Short-term debt $ 18,000 $ 17,000 Accounts payable 64,400 75,500 Other accrued liabilities 20,000 18,000 Total current liabilities $ 102,400 $ 110,500 Long-term debt 22,000 30,000 Total liabilities $ 124,400 $ 140,500 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 $ 81,500 $ 85,000 Net income for the year 51,100 1,500 Dividends for the year (20,000 ) (5,000 ) Ending balance $ 112,600 $ 81,500 Total stockholders’ equity $ 186,600 $ 140,500 Total liabilities and stockholders’ equity $ 311,000 $ 281,000
Explanation / Answer
Solution:
(A) - Calculation of Return on Investment :
Return on Investment = (Net Income/Sales)*(Sales/Average Total Assets)
Given data :
*Net Income For 2017 = $51,100/-
*sales for 2017 =$6,70,000/-
*Average Total Assets =(3,11,000 +2,81,000)/2
=2,96,000/-
Return on Investment=(51,100/6,70,000)*(6,70,000/2,96,000)
=0.0762*2.2635
=0.1724*100
=17.24
Therefore Return On Investment = 17.25%(Approx)
(B) – Calculation Of Return on Equity :
Return on Equity = Net Income/Average Stockholders Equity
Given data :
*Net Income for 2017 =$51,100
*Average Stockholders Equity = (1,86,600+1,40,500)/2
=$1,63,550
Return on Equity =(51,100/1,63,550)
=0.3124*100
Therefore Return On Equity = 31.24%(Approx)
(C) -Calculation Of Working Capital :
Working Capital = Current Assets-Current Liabilities
Given data :
*Current Assets for 2017 = $2,01,000/-
*Current Liabilities for 2017 = $1,02,400/-
Working Capital =2,01,000-1,02,400
=98,600
Therefore Working Capital = $98,600/-
(D) – Calculation of Current Ratio :
Current Ratio = Current Assets/Current Liabilities
Given data:
*Current Assets for 2017 =$2,01,000/-
*Current Liabilities for 2017 =$1,02,400/-
Current Ratio =2,01,000/1,02,400
Therefore Current Ratio = 1.9628 times(Approx)
(E) – Calculation of Acid Test Ratio :
Acid test ratio = (Cash +Accounts Receivable)/Current Liabilities
Given data:
*Cash for 2017 =$20,000/-
*Accounts receivables for 2017 =78,000/-
*Current Liabilities for 2017 =$1,02,400/-
Acid Test Ratio =20000+78000/102400
=0.9570
Therefore Acid Test ratio =0.9570 times(Approx)