Question

The MBA802 Company failed to record (accrue) $9,000,000 of cost related to vendor invoices and warranty liability at year-end. With this omission, the company's summary financial statements were stated as follows:

Summarized Income Statement

Sales $97,000,000

All Cost (incl. Interest & Taxes)   $83,000,000

Net Income    $14,000,000

Summarized Balance Sheet

This Year     Last Year

Assets:

All Current Assets combined $74,000,000 $68,000,000

All Long-Term Assets combined $61,000,000    $59,000,000

Total Assets: $135,000,000      $127,000,000

Liabilities & Stockholders Equity

All Current Liabilities combined $61,000,000    $57,000,000

All Long-Term Liabilities combined $35,000,000   $45,000,000

Stockholders Equity $39,000,000    $25,000,000

Total Liabilities & Equity $135,000,000    $127,000,000

Answer the following questions:

Current Ratio per Company Statements?

Current Ratio if Statements Fixed This Error?

Would the Current Ratio Be Better or Worse?

ROI per Company Statements?

ROI if Statements Fixed This Error?

Would the ROI be Better or Worse?

ROE per Company Statements?

ROE if Statements Fixed This Error?

Would the ROE be Better or Worse?

Important Notes Regarding How You Should Input Your Answers :

Display Current Ratio in the following format only   x.xx (in other words, go to 2 decimal points)

Display ROI and ROE responses in the following format only    x.x% (in other words, go to one decimal point and include the percentage sign)

Display the Better/Worse responses only using one of the following 2 choices: Better Worse

Answer 1

CURRENT RATIO(AS PER GIVEN STATEMENT)= CURRENT ASSETS/CURRENT LIABLITIES =74,000,000/61,000,000=1.21

CURRENT RATIO (IF STATEMENT FIXED THIS ERROR)= CURRENT ASSETS/CURRENT LIABLITIES

=74,000,000/70,000,000=1.06

CURRENT ASSESTS= 61,000,000(GIVEN)+ 9,000,000(OUTSTANDING EXPENSES)=70,000,000

CURRENT RATIO WOULD BE WORSE

ROI (PER COMPANY STATEMENT)=(NET INCOME/TOTAL ASSETS)*100

=(14,000,000/135,000,000)*100 =10.4%

ROI (IF STATEMENT FIXED THIS ERROR)=(NET INCOME/TOTAL ASSETS)*100

=(5,000,000/135,000,000)*100=3.7%

NET INCOME= 14,000,000- 9,000,000=5,000,000

IF ERROR IS FIXED, ROI WOULD BE WORSE

ROE(PER COMPANY STATEMENT)= (NET INCOME/TOTAL STOCKHOLDER'S EQUITY)*100

=(14,000,000/39,000,000)*100=35.9%

ROE (IF STATEMENT FIXED THIS ERROR)=(5,000,000/39,000,000)*100=12.8%

IF ERROR IS FIXED, ROE WOULD BE WORSE