FUNDAMENTAL ACCT PRIN CONNECT ACCESS
FUNDAMENTAL ACCT PRIN CONNECT ACCESS
24th Edition
ISBN: 9781266494604
Author: Wild
Publisher: MCG
Question
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Chapter 17, Problem 4BPSB
To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 1:

Current ratio.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Current ratio = 2.5 : 1

Explanation of Solution

  Current ratio = Current assetsCurrent liabilitiesCurrent assets ($6100 + $6900 + $15100 + $13500 + $2000) = $43600Current liabilities ($11500 + $3300 + $2600) = $17400So, current ratio = $43600$17400= 2.5 : 1

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 2:

Acid-test ratio.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Acid-test ratio = 1.6 : 1

Explanation of Solution

  Acid-test ratio = Quick assetsCurrent liabilitiesQuick assets ($6100 + $6900 + $15100) = $28100Current liabilities ($11500 + $3300 + $2600) = $17400So, Acid-test ratio = $28100$17400= 1.6 : 1

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 3:

Days' sales uncollected.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Days' sales uncollected = 17.5 days

Explanation of Solution

  Days' sales uncollected = Accounts receivable, netNet sales  x 365So, Days' sales uncollected = $15100$315500 x 365= 17.5 days

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 4:

Inventory turnover.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Inventory turnover = 15.3 times

Explanation of Solution

  Inventory turnover = Cost of goods soldAverage inventory  Cost of goods sold = $236100Average inventory ($17400 + $13500) / 2 = $15450So, Inventory turnover  = $236100$15450 = 15.3 times

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 5

Days' sales in inventory.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Days' sales in inventory = 20.9 days

Explanation of Solution

  Days' sales in inventory = Ending inventoryCost of goods sold  x 365 Cost of goods sold = $236100Ending inventory = $13500So, Days' sales in inventory  = $13500$236100 x 365 = 20.9 days

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 6

Debt-to-equity ratio.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Debt-to-equity ratio = 0.68

Explanation of Solution

  Debt-to-equity ratio = Total liabilitiesTotal equity  Total liabilities($11500+ $3300 + $2600 + $30000) = $47400Total equity ($35000 + $35100) = $70100So, Debt-to-equity ratio  = $47400$70100  = 0.68

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 7

Times interest earned.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Times interest earned = 13.7 times

Explanation of Solution

  Times interest earned = Income before interest expense and income tax expenseInterest expense Income before interest expense and income tax expense ($28000 + $2200) = $30200Interest expense = $2200So, Times interest earned  = $30200$2200  = 13.7 times

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 8

Profit margin ratio.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Profit margin ratio = 7.5%

Explanation of Solution

  Profit margin ratio = Net incomeNet sales x 100Net income = $23800Net sales = $315500So, Profit margin ratio  = $23800$315500 x 100  = 7.5%

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 9

Total assets turnover.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Total assets turnover = 4.0 times

Explanation of Solution

  Total assets turnover = Net salesAverage total assets Average total assets ($117500 + $94900) / 2 = $106200Net sales = $315500So, Total assets turnover  = $315500$106200  = 3.97 times or 4.0 times

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 10

Return on total assets.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Return on total assets = 22.4%

Explanation of Solution

  Return on total assets = Net incomeAverage total assets x 100Average total assets ($117500 + $94900) / 2 = $106200Net income = $23800So, Return on total assets   = $23800$106200  x 100= 22.4%

To determine

Concept Introduction:

Current ratio:

Current ratio helps in measuring short-term liquidity of a firm. Current ratio is computed on the basis of current assets and current liabilities.

Acid-test ratio:

Acid-test ratio shows the relationship between quick assets and current liabilities. This ratio helps in measuring ability of the company to meet its short-term liabilities with liquid assets.

Gross margin ratio:

Gross margin ratio shows relationship between sales revenue and gross profit. This ratio helps in knowing that how much gross profit margin a business is generating from given amount of sales revenue.

Return on total assets:

Return on total assets is known as profitability measurement which is calculated on the basis of net income and average total assets. This ratio helps in knowing the rate of return on average total assets.

Requirement 11

Return on common stockholders' equity.

Expert Solution
Check Mark

Answer to Problem 4BPSB

Return on common stockholders' equity = 38.3%

Explanation of Solution

  Return on common stockholders' equity = Net incomeAverage common stockholders' equity x 100 Average common stockholders' equity ($35500 + $18800 + $35000 + $35100) / 2 = $62200Net income = $23800So, Return on common stockholders' equity  = $23800$62200 x 100  = 38.3%

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Chapter 17 Solutions

FUNDAMENTAL ACCT PRIN CONNECT ACCESS

Ch. 17 - What ratios would you compute to evaluate...Ch. 17 - Why would a company’s return on total assets be...Ch. 17 - 13. Where on the income statement does a company...Ch. 17 - Prob. 14DQCh. 17 - Prob. 15DQCh. 17 - Prob. 16DQCh. 17 - Prob. 17DQCh. 17 - Prob. 1QSCh. 17 - QS 17-2 Standard of comparison C2 Identify which...Ch. 17 - Prob. 3QSCh. 17 - Trend percents P1 Use the following information to...Ch. 17 - QS17-5 Common-size analysis P2 Refer to the...Ch. 17 - QS 17-6 Computing current ratio and acid-test...Ch. 17 - QS 17-7 Computing accounts receivable turnover and...Ch. 17 - QS 17-8 Computing inventory turnover and days'...Ch. 17 - QS17-9 Computing total asset turnover P3 Dundee...Ch. 17 - Prob. 10QSCh. 17 - Prob. 11QSCh. 17 - QS 17-12 Computing price-earnings ratio and...Ch. 17 - Prob. 13QSCh. 17 - Prob. 14QSCh. 17 - QS 17-15A Identifying unusual and/or infrequent...Ch. 17 - Exercise 17-1 Building blocks of analysis Match...Ch. 17 - Prob. 2ECh. 17 - Prob. 3ECh. 17 - Prob. 4ECh. 17 - Prob. 5ECh. 17 - Prob. 6ECh. 17 - Prob. 7ECh. 17 - Prob. 8ECh. 17 - Prob. 9ECh. 17 - Prob. 10ECh. 17 - Exercise 17-11 Analyzing profitability P3 Q Refer...Ch. 17 - Prob. 12ECh. 17 - Prob. 13ECh. 17 - Prob. 14ECh. 17 - Prob. 15ECh. 17 - Exercise 17-16 Interpreting financial ratios A1 P3...Ch. 17 - Prob. 17ECh. 17 - Prob. 18ECh. 17 - Problem 17-1A Calculating and analyzing trend...Ch. 17 - Problem 17-2A Ratios, common-size statements, and...Ch. 17 - Problem 17-3A Transactions, working capital, and...Ch. 17 - Problem 17-4A Calculating financial statement...Ch. 17 - Prob. 5APSACh. 17 - Prob. 6APSACh. 17 - Prob. 1BPSBCh. 17 - Prob. 2BPSBCh. 17 - Prob. 3BPSBCh. 17 - Prob. 4BPSBCh. 17 - Prob. 5BPSBCh. 17 - Prob. 6BPSBCh. 17 - SP 17 Use the following selected data from...Ch. 17 - Prob. 1AACh. 17 - Prob. 2AACh. 17 - Prob. 3AACh. 17 - BTN 17-1 Refer to Apple’s financial statements in...Ch. 17 - Prob. 2BTNCh. 17 - Prob. 3BTNCh. 17 - Prob. 4BTNCh. 17 - Prob. 5BTNCh. 17 - Prob. 6BTN
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