Question
In: Accounting
Presented here are the comparative balance sheets of Hames Inc. at December 31, 2020 and 2019....
Presented here are the comparative balance sheets of Hames Inc.
at December 31, 2020 and 2019. Sales for the year ended December
31, 2020, totaled $1,700,000.
| HAMES INC. Balance Sheets December 31, 2020 and 2019 |
||||||||
| 2020 | 2019 | |||||||
| Assets | ||||||||
| Cash | $ | 63,000 | $ | 57,000 | ||||
| Accounts receivable | 285,000 | 266,000 | ||||||
| Merchandise inventory | 261,000 | 247,000 | ||||||
| Total current assets | $ | 609,000 | $ | 570,000 | ||||
| Land | 109,000 | 82,000 | ||||||
| Plant and equipment | 375,000 | 330,000 | ||||||
| Less: Accumulated depreciation | (195,000 | ) | (180,000 | ) | ||||
| Total assets | $ | 898,000 | $ | 802,000 | ||||
| Liabilities | ||||||||
| Short-term debt | $ | 54,000 | $ | 51,000 | ||||
| Accounts payable | 168,000 | 144,000 | ||||||
| Other accrued liabilities | 68,000 | 54,000 | ||||||
| Total current liabilities | $ | 290,000 | $ | 249,000 | ||||
| Long-term debt | 56,000 | 105,000 | ||||||
| Total liabilities | $ | 346,000 | $ | 354,000 | ||||
| Stockholders’ Equity | ||||||||
| Common stock, no par, 200,000 shares authorized, 80,000 and 50,000 shares issued, respectively | $ | 224,000 | $ | 162,000 | ||||
| Retained earnings: | ||||||||
| Beginning balance | $ | 286,000 | $ | 217,000 | ||||
| Net income for the year | 102,000 | 84,000 | ||||||
| Dividends for the year | (60,000 | ) | (15,000 | ) | ||||
| Ending balance | $ | 328,000 | $ | 286,000 | ||||
| Total stockholders’ equity | $ | 552,000 | $ | 448,000 | ||||
| Total liabilities and Stockholders’ equity | $ | 898,000 | $ | 802,000 | ||||
Required:
- Calculate ROI for 2020.
- Calculate ROE for 2020. (Round your answer to 1 decimal place.)
- Calculate working capital at December 31, 2020.
- Calculate the current ratio at December 31, 2020. (Round your answer to 2 decimal places.)
- Calculate the acid-test ratio at December 31, 2020. (Round your answer to 2 decimal places.)
- Assume that on December 31, 2020, the treasurer of Hames decided to pay $50,000 of accounts payable. What impact, if any, this payment will have on the answers you calculated for parts a-d (increase, decrease, or no effect)
- Assume that instead of paying $50,000 of accounts payable on December 31, 2020. Hames collected $50,000 of accounts receivable. What impact, if any, this receipt will have on the answers you calculated for parts a-d (increase, decrease, or no effect).
Solutions
Expert Solution
ROI = Return on Investment = Net Operating Income / Average Operating Asset
*Net Operating Income = $102,000
*Average Operating Assets = Cash + A/R + Inventory + Land + Net Equipment = $63,000+285,000+261,000+109,000+(375,000-195,000) = $898,000
* Average Operating Assets = [$898,000 + 802,000] / 2 = $850,000
ROI = $102,000 / $850,000 = 12%
********************************************************
ROE = Return on Equity= Net income / Average Shareholders Equity
*Net Operating Income = $102,000
*Average SH'Equity = [$552,000 + 448,000] / 2 = $500,000
*ROE = $102,000 / $500,000 = 20.4%
*********************************************************
Working Capital = Current Assets - Current Liabilities
*Current Assets =$609,000
*Current Liabilities = $290,000
Working Capital = $609,000 - 290,000 = $319,000
**********************************************************
Current Ratio = Current Assets / Current Liabilities
*Current Assets =$609,000
*Current Liabilities = $290,000
Current Ratio = $609,000 / 290,000 = 2.1 : 1
**********************************************************
*Acid Test = Quick Assets - Current Liabilities
*Quick Assets =Current assets - Inventory = $609,000 - 261,000 = $348,000
*Current Liabilities = $290,000
Current Ratio = $348,000 / 290,000 = 1.2 : 1
*************************************************************************************************
Decided to pay $50,000 of accounts payable.:
If we follow this,
Cash Account balance reduced by $50,000 and account payable account balance also reduced by $50,000.
| Requirement | 2020- | 2020-With changes | Impact |
| ROE | 20.4% | 20.4% | No effect |
| Working Capital | $319,000 | $319,000 | No effect |
| Current Asset | 2.10 | 2.33 | Increases |
| Acid Test Ratio | 1.20 | 1.24 | Increases |
***********************************************************************************************************
* Collected $50,000 of accounts receivable. :
If we follow this,
Cash Account balance Increased by $50,000 and account receivable account balance reduced by $50,000.
| Requirement | 2020- | 2020-With changes | Impact |
| ROE | 20.4% | 20.4% | No effect |
| Working Capital | $319,000 | $319,000 | No effect |
| Current Asset | 2.10 | 2.10 | No effect |
| Acid Test Ratio | 1.20 | 1.24 | No effect |
**************************************************************************************************************
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ekkarill92 answered 2 years agoRelated Solutions
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2020
2019
Cash
$21,000
$19,000
Accounts receivable
78,000
72,000
Merchandise inventory
103,000
99,000
Total current assets
$202,000
$190,000
Land
50,000
40,000
Plant and equipment
125,000
110,000
Less: Accumulated depreciation
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(60,000)
Total assets
$312,000
$280,000
Liabilities
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$17,000
Accounts payable
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2016
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$
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$
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Accounts receivable
78,000
72,000
Merchandise inventory
103,000
99,000
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$
191,000
Land
50,000
40,000
Plant and equipment
125,000
110,000
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HAMES, INC.,
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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
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70,100
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$111,000
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Accounts payable
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Common stock
74,600
73,400
Retained earnings
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18,500
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Equipment
60,050
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Bonds payable
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2019
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Bonds payable
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2020
2019
Cash
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Accounts receivable
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22,000
Investments
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16,250
Equipment
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69,950
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Bonds payable
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Common stock
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Retained earnings
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