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 $540,000.

HAMES INC. Balance Sheets December 31, 2020 and 2019
	2020					2019
Assets
Cash		$	24,000				$	21,000
Accounts receivable			78,000					72,000
Merchandise inventory			103,000					99,000
Total current assets		$	205,000				$	192,000
Land			50,000					40,000
Plant and equipment			125,000					110,000
Less: Accumulated depreciation			(65,000	)				(60,000	)
Total assets		$	315,000				$	282,000
Liabilities
Short-term debt		$	18,000				$	17,000
Accounts payable			66,000					76,000
Other accrued liabilities			20,000					18,000
Total current liabilities		$	104,000				$	111,000
Long-term debt			22,000					30,000
Total liabilities		$	126,000				$	141,000
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		$	82,000				$	85,000
Net income for the year			53,000					2,000
Dividends for the year			(20,000	)				(5,000	)
Ending balance		$	115,000				$	82,000
Total stockholders’ equity		$	189,000				$	141,000
Total liabilities and stockholders’ equity		$	315,000				$	282,000

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.)

Answer 1

Ans. 1	Return on investment (ROI) =   Net income / Average assets * 100
		$53,000 / $298,500 * 100
		17.76%
	*Average assets = (Beginning assets + Ending assets) / 2
		($282,000 + $315,000) / 2
		$298,500
Ans. 2	Return on equity (ROE) =   Net income / Average Common stockholder's equity * 100
		$53,000 / $165,000 * 100
		32.1%
	* Average Stockholder's equity =   (Beginning equity + Ending equity) / 2
		($141,000 + $189,000) / 2
		$165,000
Ans. 3	Working capital =     Total current assets - Total current liabilities
		$205,000 - $104,000
		$101,000
Ans. 4	Current ratio   =   Total current assets / Total current liabilities
		$205,000 / $104,000
		1.97 : 1
Ans. 5	Acid test ratio   =   (Total current assets - Merchandise Inventory / Total current liabilities
		($205,000 - $103,000) / $104,000
		$102,000 / $104,000
		0.98 : 1