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.

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

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.)

Answer 1

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)