Question

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 $690,000.

HAMES INC. Balance Sheets December 31, 2020 and 2019
	2020					2019
Assets
Cash		$	20,000				$	19,000
Accounts receivable			78,000					72,000
Merchandise inventory			103,000					99,000
Total current assets		$	201,000				$	190,000
Land			50,000					40,000
Plant and equipment			125,000					110,000
Less: Accumulated depreciation			(65,000	)				(60,000	)
Total assets		$	311,000				$	280,000
Liabilities
Short-term debt		$	18,000				$	17,000
Accounts payable			64,400					75,000
Other accrued liabilities			20,000					18,000
Total current liabilities		$	102,400				$	110,000
Long-term debt			22,000					30,000
Total liabilities		$	124,400				$	140,000
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		$	81,000				$	85,000
Net income for the year			51,600					1,000
Dividends for the year			(20,000	)				(5,000	)
Ending balance		$	112,600				$	81,000
Total stockholders’ equity		$	186,600				$	140,000
Total liabilities and stockholders’ equity		$	311,000				$	280,000

Required:

1. Calculate ROI for 2020. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
2. Calculate ROE for 2020. (Round your answer to 1 decimal place.)
3. Calculate working capital at December 31, 2020.
4. Calculate the current ratio at December 31, 2020. (Round your answer to 2 decimal places.)
5. Calculate the acid-test ratio at December 31, 2020. (Round your answer to 2 decimal places.)
6. Assume that on December 31, 2020, the treasurer of Hames decided to pay $15,000 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).
7. Assume that instead of paying $15,000 of accounts payable on December 31, 2020. Hames collected $15,000 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).

Answer 1

2020:

ROI is the return on investments but in the question, no investments are given so total assets which were invested in the business are treated as investments, hence, total assets are considered in place of investments.

ROI or ROA = Net Income / Average Total Assets

= $51,600 / [($280,000 + $311,000)/2] * 100

= $51,600 / $295,500 * 100

= 17.46%

Therefore, ROA for 2020 is 17.46%.

ROE = Net Income / Average Total Shareholders' Equity

= $51,600 / [($140,000 + $186,600)/2] * 100

= $51,600 / $163,300 * 100

= 31.6%

Therefore, ROE for 2020 is 31.6%.

Working Capital = Total Current Assets - Total Current Liabilities

= $201,000 - $102,400

= $98,600

Therefore, working capital for 2020 is $98,600.

Current Ratio = Total Current Assets / Total Current Liabilities

= $201,000 / $102,400

= 1.96

Therefore, current ratio for 2020 is 1.96.

Acid-test ratio = (Total Current Assets - Inventory) / Total Current Liabilities

= ($201,000 - $103,000) / $102,400

= $98,000 / $102,400

= 0.96

Therefore, acid-test ratio for 2020 is 0.96.

Note: As per HOMEWORKLIB RULES, the first four sub parts should be answered but i have answered the first five sub parts, hence, please post the remaining requirements separately. Please do not give a negative rating for not answering all the sub parts as i have just followed the HOMEWORKLIB RULES.