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 $580,000. HAMES, INC., Balance Sheets December 31, 2017 and 2016 2017 2016 Assets Cash $ 23,000 $ 19,000 Accounts receivable 78,000 72,000 Merchandise inventory 103,000 99,000 Total current assets $ 204,000 $ 190,000 Land 50,000 40,000 Plant and equipment 125,000 110,000 Less: Accumulated depreciation (65,000 ) (60,000 ) Total assets $ 314,000 $ 280,000 Liabilities Short-term debt $ 18,000 $ 17,000 Accounts payable 65,600 75,000 Other accrued liabilities 20,000 18,000 Total current liabilities $ 103,600 $ 110,000 Long-term debt 22,000 30,000 Total liabilities $ 125,600 $ 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 53,400 1,000 Dividends for the year (20,000 ) (5,000 ) Ending balance $ 114,400 $ 81,000 Total stockholders’ equity $ 188,400 $ 140,000 Total liabilities and stockholders’ equity $ 314,000 $ 280,000 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.) 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: No effect Decrease Increase b. ROE for the year ended December 31, 2017: No effect Increase Decrease c.Working capital as at December 31, 2017: Increase No effect Decrease d. Current ratio as at December 31, 2017: Increase Decrease No effect 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: Increase Decrease No effect b. ROE for the year ended December 31, 2017: No effect Increase Decrease c. Working capital as at December 31, 2017: Decrease No effect Increase d. Current ratio as at December 31, 2017: Increase Decrease No effect

Answer 1

a. Compute Return on Investment (ROI) for 2017 as follows Net Income Return on Investment- Average Total Assets $54,100 v100 $298500 18.12%) -354,-x100 Therefore, Return on Investment is 18.12%. Working Note: verage TotalassetS3 16,000 S281,000 2 $597,000 - $298,500

b. Compute Return on Equity (ROE) for 2017 as follows: Net Income Average Stockholders' Equity $54.100-X100 $165,050 -32.8% Therefore, Return on Equity is 32.8%. Working Note: Average Stockolders' Equity - 5189.600-S140,500 2 $330,100 2 -$165,050 C. Compute Working Capital as follows Working Capital-Current Assets - Current Liabilities -$206,000- $104,400 -$101,600 Therefore, Working Capital is $101,600

d. Compute Current Ratio as follows: Current Ratio Current Assets Current Liabilitie:s $206,000 $104,400 1.97 Therefore, Current Ratio is 1.97:1