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In: Accounting

Presented here are the comparative balance sheets of Hames, Inc., at December 31, 2017 and 2016....

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.

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

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:

Solutions

Expert 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.

ekkarill92 answered 1 year ago
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