Question

Presented below are the comparative balance sheets of Big Apple, Inc., at December 31, 2014, and 2013. Sales for the year ended
December 31, 2014, totaled $890,000. Net income during 2014 was $74,000.
2014 2013
Current Assets $380,000 $352,000 (Note: Cash balances in 2014 & 2013 were $45,000 and $49,000
respectively. Accounts receivable balances in 2014 and 2013 were $134,000 and $106,000 respectively. Inventory balances in
2014 and 2013 were $201,000 and $197,000 respectively).
Total Assets $624,000 $580,000
Current Liabilities $205,000 $194,000
Total Liabilities $292,000 $301,000
Stockholders' Equity $332,000 $279,000
Total Liabilities & S.E. $624,000 $580,000
Calculate:
Return on Investment for 2014 (show as a percentage rounded to one decimal point i.e. 10.1%)
Working Capital as of the end of 2014 (show the $ value)
Current ratio as of the end of 2014 (show the ratio rounded to 2 decimal places i.e. 8.39)
Acid-test ratio as of the end of 2014 (show the ratio rounded to 2 decimal places i.e. 8.39)

Answer 1

1) Return on Investment (ROI) = (Net income for the year / Average toal assets employed) x 100 Total assets of 2013 Total assets of 2014 Average total assets employed Net income for 2014 Return on investment for 2014 $580,000 $624,000 $602,000 [($580000 + $624000)/2] $74,000 12.3% [($ 74000 / $602000) x 100 = 0.123 = 12.3%] 2) Working capital as of the end of 2014 = Total current assets as of the end of 2014 - Total current liabilities as of the end of 2014 Total current assets as of the end of 2014 Total current liabilities as of the end of 2014 Working capital as of the end of 2014 $380,000 $205,000 $175,000 ($380000 - $205000] 3) Current ratio as of the end of 2014 = Total current assets as of the end of 2014 / Total current liabilities as of the end of 2014 Total current assets as of the end of 2014 Total current liabilities as of the end of 2014 Current ratio as of the end of 2014 $380,000 $205,000 1.85 ($380000 / $205000]

4) Acid-test ratio as of the end of 2014 = Total quick assets as of the end of 2014 / Total current liabilities as of the end of 2014 Cash balance in 2014 Add: Accounts receivable balance in 2014 Total quick assets as of the end of 2014 Total current liabilities as of the end of 2014 Current ratio as of the end of 2014 $45,000 $134,000 $179,000 $205,000 0.87 ($179000 / $205000]