Homework SoursePresented here are the comparative balance sheets of Hames I
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 $640,000.
281,000
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.)
f. Assume that on December 31, 2017, the treasurer of Hames, Inc., decided to pay $15,000 of accounts payable. What impact, if any, this receipt will have on the answers you calculated for requirements a-d (increase, decrease, or no effect)
a. ROI for the year ended December 31, 2017:
b. ROE for the year ended December 31, 2017:
c.Working capital as at December 31, 2017:
d. Current ratio as at December 31, 2017:
g. Assume that instead of paying $15,000 of accounts payable on December 31, 2017. Hames, Inc., collected $15,000 of accounts receivable. What impact, if any, this receipt will have on the answers you calculated for requirements a-d (increase, decrease, or no effect)
a. ROI for the year ended December 31, 2017:
b. ROE for the year ended December 31, 2017:
c. Working capital as at December 31, 2017:
d. Current ratio as at December 31, 2017:
| HAMES, INC., Balance Sheets December 31, 2017 and 2016 | ||||||||||
| 2017 | 2016 | |||||||||
| Assets | ||||||||||
| Cash | $ | 19,000 | $ | 20,000 | ||||||
| Accounts receivable | 78,000 | 72,000 | ||||||||
| Merchandise inventory | 103,000 | 99,000 | ||||||||
| Total current assets | $ | 200,000 | $ | 191,000 | ||||||
| Land | 50,000 | 40,000 | ||||||||
| Plant and equipment | 125,000 | 110,000 | ||||||||
| Less: Accumulated depreciation | (65,000 | ) | (60,000 | ) | ||||||
| Total assets | $ | 310,000 | $ | 281,000 | ||||||
| Liabilities | ||||||||||
| Short-term debt | $ | 18,000 | $ | 17,000 | ||||||
| Accounts payable | 64,000 | 75,500 | ||||||||
| Other accrued liabilities | 20,000 | 18,000 | ||||||||
| Total current liabilities | $ | 102,000 | $ | 110,500 | ||||||
| Long-term debt | 22,000 | 30,000 | ||||||||
| Total liabilities | $ | 124,000 | $ | 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 | 50,500 | 1,500 | ||||||||
| Dividends for the year | (20,000 | ) | (5,000 | ) | ||||||
| Ending balance | $ | 112,000 | $ | 81,500 | ||||||
| Total stockholders’ equity | $ | 186,000 | $ | 140,500 | ||||||
| Total liabilities and stockholders’ equity | $ | 310,000 | $ | 281,000 |
Solution
A
ROI
Numerator
/
denominator
ROI
Net Profit
/
Average Total Assets
ROI
2017
$ 50,500.00
/
(310000+281000)/2
17%
B
ROE
Numerator
/
denominator
ROE
Net Profit
/
Average equity during the year
ROE
2017
$ 50,500.00
/
(186000+140500)/2
31%
C
Working Capital
Current Assets
-
Current Liabilities
Working Capital
2017
$ 200,000.00
-
$ 102,000.00
$ 98,000.00
E
Current Ratio
Numerator
/
denominator
Current Ratio
Current Assets
/
Current liabilities
Current Ratio
2017
$ 200,000.00
/
$ 102,000.00
1.96
to 1
D
Acid Test Ratio
Numerator
/
denominator
Quick Ratio
Liquid Assets
/
Current liabilities
Quick Ratio
2017
$ 97,000.00
$ 102,000.00
0.95
to 1
Changes in the ratios if Accounts payable of $ 15000 are paid
Reason
ROI
No Effect
Profit does not have any effect with change in current asset or current liability value.
ROE
No Effect
Profit does not have any effect with change in current asset or current liability value.
Working Capital
No Effect
The changes in current asset and Current liability will be same.
Current Ratio
Ratio will Increase
Current Assets/Current liabilities
(200000-15000/102000-15000)
2.13
Changes in the ratios if $ 15000 are Received from Accounts Receivable paid
Reason
ROI
No Effect
Profit does not have any effect with change in current asset or current liability value.
ROE
No Effect
Profit does not have any effect with change in current asset or current liability value.
Working Capital
No Effect
The changes in current asset and Current liability will be same
Current Ratio
No Effect
The changes in current asset and Current liability will be same. Cash will increase by $ 15000 and receivables will decrease by $ 15000.
| A | ROI | ||||
| Numerator | / | denominator | ROI | ||
| Net Profit | / | Average Total Assets | ROI | ||
| 2017 | $ 50,500.00 | / | (310000+281000)/2 | 17% |
