EBK INTERMEDIATE ACCOUNTING
3rd Edition
ISBN: 9780136946465
Author: SANNELLA
Publisher: VST
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 6.6MC
To determine
To identify: The correct option.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Here are simplified financial statements for Watervan Corporation:
INCOME STATEMENT
(Figures in $ millions)
Net sales
$ 887.00
Cost of goods sold
747.00
Depreciation
37.00
Earnings before interest and taxes (EBIT)
$ 103.00
Interest expense
18.00
Income before tax
$ 85.00
Taxes
17.85
Net income
$ 67.15
BALANCE SHEET
(Figures in $ millions)
End of Year
Start of Year
Assets
Current assets
$ 375
$ 324
Long-term assets
270
228
Total assets
$ 645
$ 552
Liabilities and shareholders’ equity
Current liabilities
$ 200
$ 163
Long-term debt
114
127
Shareholders’ equity
331
262
Total liabilities and shareholders’ equity
$ 645
$ 552
The company’s cost of capital is 8.5%.
Required:
Calculate Watervan’s economic value added (EVA).
Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
What is the company’s return on capital? (Use start-of-year rather than average capital.)
Note: Do not…
Here are simplified financial statements for Watervan Corporation:
INCOME STATEMENT
(Figures in $ millions)
Net sales
$ 887.00
Cost of goods sold
747.00
Depreciation
37.00
Earnings before interest and taxes (EBIT)
$ 103.00
Interest expense
18.00
Income before tax
$ 85.00
Taxes
17.85
Net income
$ 67.15
BALANCE SHEET
(Figures in $ millions)
End of Year
Start of Year
Assets
Current assets
$ 375
$ 324
Long-term assets
270
228
Total assets
$ 645
$ 552
Liabilities and shareholders’ equity
Current liabilities
$ 200
$ 163
Long-term debt
114
127
Shareholders’ equity
331
262
Total liabilities and shareholders’ equity
$ 645
$ 552
The company’s cost of capital is 8.5%.
Required:
What is the company’s return on capital? (Use start-of-year rather than average capital.)
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
P.S - Answer is not 17.26%.
Data extracts from Gamma's accounts are shown below
Turnover
Gross Profit
Expenses
Operating Profit
Interest and Tax
Profit for Year
Non-current assets
Inventory
Receivables
Cash at Bank
Payables
Other Current Liabilities
Net current assets
Shareholder funds
10% Debenture (2030)
Required:
Ye-Dec-20
Ye-Dec-19
18,500
16,000
4,500
4,000
1,500
2,400
3,000
1,600
1,100
700
1,900
900
19,600
16,400
840
640
2,790
1,890
450
350
830
570
340
460
2,910
1,850
15,510
13,250
7,000
5,000
22,510
18,250
A) Calculate the following accounting ratios for each year-end
1) Return on Capital Employed
2) Profit Margin on Sales
3) Gearing Ratio
4) Interest Cover Ratio
5) Return to Shareholders
6) Quick Asset or Acid test Ratio
7) Cash Conversion Period (Operating Cash Cycle)
B) Outline the limitations of accounting ratios
Chapter 6 Solutions
EBK INTERMEDIATE ACCOUNTING
Ch. 6 - What are the limitations of the balance sheet?Ch. 6 - What does a firms liquidity measure?Ch. 6 - Prob. 6.3QCh. 6 - What are the four major components of stockholders...Ch. 6 - Prob. 6.5QCh. 6 - Prob. 6.6QCh. 6 - Where is accumulated other comprehensive income...Ch. 6 - Prob. 6.8QCh. 6 - Prob. 6.9QCh. 6 - What are the two main balance sheet formats?...
Ch. 6 - Prob. 6.11QCh. 6 - Prob. 6.12QCh. 6 - What are the two formatting options for reporting...Ch. 6 - What is financial statement articulation?Ch. 6 - How is net income closed? Is the closing entry the...Ch. 6 - Why are the notes to the financial statements an...Ch. 6 - Prob. 6.17QCh. 6 - What is a subsequent event?Ch. 6 - What is a subsequent event under IFRS?Ch. 6 - How do firms report a material subsequent event on...Ch. 6 - Prob. 6.21QCh. 6 - Over what period must management assess the...Ch. 6 - Prob. 6.23QCh. 6 - Prob. 6.24QCh. 6 - Prob. 6.25QCh. 6 - Prob. 6.26QCh. 6 - Prob. 6.27QCh. 6 - Prob. 6.28QCh. 6 - Prob. 6.29QCh. 6 - Prob. 6.30QCh. 6 - Prob. 6.31QCh. 6 - Who is responsible for designing and implementing...Ch. 6 - Prob. 6.33QCh. 6 - What are the two key measures of liquidity?...Ch. 6 - What does the debt-to-equity ratio measure for a...Ch. 6 - What does a high current ratio indicate about a...Ch. 6 - Is it useful to compare working capital among...Ch. 6 - Sykes Corporations comparative balance sheets at...Ch. 6 - During Year 1, Brianna Company had the following...Ch. 6 - Which of the following items would not be included...Ch. 6 - Kong Co. purchased a three-month U.S. Treasury...Ch. 6 - Prob. 6.5MCCh. 6 - Prob. 6.6MCCh. 6 - In its year-end income statement, Black Knights...Ch. 6 - On is current year income statement, Vegas...Ch. 6 - Advantages of the Statement of Financial Position....Ch. 6 - Prob. 6.2BECh. 6 - Prob. 6.3BECh. 6 - Account Classification: Current and Noncurrent...Ch. 6 - Classified Balance Sheet. Armstrong Associates...Ch. 6 - Classified Balance Sheet, Report Format. Martell...Ch. 6 - Classified Balance Sheet, Account Format. Using...Ch. 6 - Classified Balance Sheet. Report Format.Bowe...Ch. 6 - Classified Balance Sheet, Account Format. Using...Ch. 6 - Classification as Operating. Investing, or...Ch. 6 - Prob. 6.11BECh. 6 - Classification as Operating, Investing, or...Ch. 6 - Classification as Operating. Investing, or...Ch. 6 - Classification as Operating, Investing, or...Ch. 6 - Classification as Operating, Investing, or...Ch. 6 - Classification as Operating, Investing, or...Ch. 6 - Classification as Operating, Investing, or...Ch. 6 - Prob. 6.18BECh. 6 - Statement of Cash Flows, Indirect Method. Identity...Ch. 6 - Financial Statement Articulation. Complete the...Ch. 6 - Prob. 6.21BECh. 6 - Prob. 6.22BECh. 6 - Prob. 6.23BECh. 6 - Prob. 6.24BECh. 6 - Statement of Cash Flows, Indirect Method. Tennis...Ch. 6 - Statement of Cash Flows, Direct Method. Use the...Ch. 6 - Prob. 6.27BECh. 6 - Ratio Analyses. Green Grasshopper Incorporated is...Ch. 6 - Classification of Assets and Liabilities. Darin...Ch. 6 - Prob. 6.2ECh. 6 - Prob. 6.3ECh. 6 - Prob. 6.4ECh. 6 - Prepare Balance Sheet. Blackburn Building Products...Ch. 6 - Prepare Balance Sheet. Lake Company provided the...Ch. 6 - Statement of Cash Flows, Indirect Method. Tulsa...Ch. 6 - Prob. 6.8ECh. 6 - Prob. 6.9ECh. 6 - Prob. 6.10ECh. 6 - Prob. 6.11ECh. 6 - Financial Statement Articulation. Use the...Ch. 6 - Prob. 6.13ECh. 6 - Prob. 6.14ECh. 6 - Prob. 6.15ECh. 6 - Prob. 6.16ECh. 6 - Prob. 6.17ECh. 6 - Prob. 6.18ECh. 6 - Prepare Balance Sheet. Larkin Corporation provided...Ch. 6 - Prob. 6.2PCh. 6 - Prepare Balance Sheet. Jennings Incorporated...Ch. 6 - Prepare Stockholders Equity Section of Balance...Ch. 6 - Prepare Stockholders Equity Section of Balance...Ch. 6 - Prepare Classified Balance Sheet.Centre Company...Ch. 6 - Prepare a classified balance sheet at December 31...Ch. 6 - Prob. 6.8PCh. 6 - Statement of Cash Flows, Operating Activities...Ch. 6 - Statement of Cash Flows, Operating Activities...Ch. 6 - Statement of Cash Flows, Direct Method. Prepare...Ch. 6 - Statement of Cash Flows, Indirect Method. Prepare...Ch. 6 - Prob. 6.13PCh. 6 - Statement of Cash Flows, Operating Activities...Ch. 6 - Statement of Cash Flows, Direct Method. Prepare...Ch. 6 - Prob. 6.16PCh. 6 - Prob. 1JCCh. 6 - Prob. 1FSCCh. 6 - Prob. 1SSCCh. 6 - Surfing the Standards Case 2: True and Fair...Ch. 6 - Basis for Conclusions Cases Basis for Conclusions...Ch. 6 - Prob. 2BCC
Knowledge Booster
Similar questions
- Juroe Company provided the following income statement for last year: Juroes balance sheet as of December 31 last year showed total liabilities of 10,250,000, total equity of 6,150,000, and total assets of 16,400,000. Refer to the information for Juroe Company on the previous page. Also, assume that Juroes total assets at the beginning of last year equaled 17,350,000 and that the tax rate applicable to Juroe is 40%. Required: Note: Round answers to two decimal places. 1. Calculate the average total assets. 2. Calculate the return on assets.arrow_forwardJuroe Company provided the following income statement for last year: Juroes balance sheet as of December 31 last year showed total liabilities of 10,250,000, total equity of 6,150,000, and total assets of 16,400,000. Required: Note: Round answers to two decimal places. 1. Calculate the times-interest-earned ratio. 2. Calculate the debt ratio. 3. Calculate the debt-to-equity ratio.arrow_forwardThe financial statements of Neale Corporation include the following information: Current Year Prior Year Balance sheet: Cash $ 24,000 $ 25,300 Short-term investments 36,000 29,600 Accounts receivable, net 76,200 83,250 Inventory 90,000 81,950 Prepaid expenses 19,800 9,900 Total current assets 246,000 230,000 Total current liabilities 140,000 115,560 Income statement: Net credit sales $ 645,000 Cost of goods sold 467,000…arrow_forward
- Selected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31 of the prior year were inventory, $47,900; total assets, $189,400; common stock, $88,000; and retained earnings, $40,532.) Assets Cash Short-term investments Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets CABOT CORPORATION $ 12,000 9,400 CABOT CORPORATION Balance Sheet December 31 of current year Liabilities and Equity Accounts payable Accrued wages payable 30, 400 Income taxes payable 42,150 2,550 148,300 Long-term note payable, secured by mortgage on plant assets Common stock Retained earnings $ 244,800 Total liabilities and equity Income Statement For Current Year Ended December 31 Sales Cost of goods sold Gross profit Operating expenses Interest expense Income before taxes Income tax expense Net income $ 450,600 297,950 152,650 98,700 4,100 49,850 20,082 $ 29,768 $ 16,500 3,200 4,400…arrow_forwardAccounts Receivable and Inventory Ratios Bell Company had the following current assets at year-end: Cash $72,500 Short-term investments 123,500 Accounts receivable (net) 425,000 Inventory 500,000 Prepaid expenses 29,000 Current assets $1,150,000 The company had net sales for the year of $2,205,000 and cost of goods sold of $1,347,500.At the beginning of the year, Bell’s accounts receivable (net) were $352,000 and itsInventory was $429,000.a. What is the company’s accounts receivable turnover for the year? (Round to two decimal places.) Answer b. What is the company’s average collection period for the year? (Round to one decimal place.) Answer c. What is the company’s inventory turnover for the year? (Round to two decimal places.) Answer d. What is the company’s days’ sales in inventory for the year? (Round to one decimal place.) Answerarrow_forwardIncome Statement For the Year Net sales $827,500 COGS 611,800 Depreciation 23,100 EBIT $192,600 Interest 9,700 Taxable income $182,900 Taxes 6,200 Net income 176,700 Balance Sheet Beginning of Year End of Year Cash $38,200 $43,700 Accounts receivable 91,400 86,150 Inventory 203,900 214,600 Net fixed assets 516,100 537,950 Total assets 849,600 882,400 Accounts payable $136,100 $104,300 Long-term debt 329,500 298,200 Common stock 75,000 82,000 Retained earnings 309,000 397,900 Total Liab. & Equity $849,600 $882,400 There are 100,000 shares that were trading at $15 per share at the end of the year. Show the computation of Cash-Flow from Assets by computing Operating Cash-Flow, and Capex, and Working Capital Investment. Show how this Cash-Flow is distributed to Debtholders (or Creditors) and Stockholders. Explain if any new issue of debt or equity has been made or any debt redemption and stock buybacks.arrow_forward
- Ratio AnalysisPresented below are summary financial data from Pompeo’s annual report: Amounts in millions Balance Sheet Cash and Cash Equivalents $1,865 Marketable Securities 19,100 Accounts Receivable (net) 9,367 Total Current Assets 39,088 Total Assets 123,078 Current Liabilities 39,255 Long-Term Debt 7,279 Shareholders’ Equity 68,278 Income Statement Interest Expense 375 Net Income Before Taxes 14,007 Calculate the following ratios:(Round to 2 decimal points) a. Times-interest-earned ratio Answer b. Quick ratio Answer c. Current ratio Answer PreviousSave AnswersNextarrow_forwardSelected information from the balance sheet of Yogi Corp. for a recent year are provided below: Sales 37,213 Net Income 1,825 Total Assets 20,000 Total Liabilities 7,444 Stockholder’s Equity 12,556 Interest Expense 370 Tax Rate 38% Assets include: cash $420, short-term investments $1000, A/R $580, PPE $18000. Liabilities include: A/P $5500, short-term debt $44, Deferred Tax Liabilities $1500, and long-term debt $400 Compute RNOA and ROE Is leverage beneficial or detrimental to the companyarrow_forwardThe following data were taken from the balance sheet of Albertini Company at the end of two recent fiscal years: Current Year Previous Year Current assets: Cash $513,000 $416,000 Marketable securities 594,000 468,000 Accounts and notes receivable (net) 243,000 156,000 Inventories 1,485,000 1,030,900 Prepaid expenses 765,000 659,100 Total current assets $3,600,000 $2,730,000 Current liabilities: Accounts and notes payable (short-term) $435,000 $455,000 Accrued liabilities 315,000 195,000 Total current liabilities $750,000 $650,000 a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place. Current Year Previous Year 1. Working capital $fill in the blank 1 $fill in the blank 2 2. Current ratio fill in the blank 3 fill in the blank 4 3. Quick ratio fill…arrow_forward
- The following data were taken from the balance sheet of Albertini Company at the end of two recent fiscal years: Current Year Previous Year Current assets: Cash $418,000 $345,600 Marketable securities 484,000 388,800 Accounts and notes receivable (net) 198,000 129,600 Inventories 290,400 87,800 Prepaid expenses 149,600 56,200 Total current assets $1,540,000 $1,008,000 Current liabilities: Accounts and notes payable (short-term) $319,000 $336,000 Accrued liabilities 231,000 144,000 Total current liabilities $550,000 $480,000 a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place. Current Year Previous Year 1. Working capital 2. Current ratio 3. Quick ratio b. The liquidity of Albertini has from the preceding year to the current year. The working capital, current ratio, and quick ratio have all Most of these changes are the result of an in current assets relative to current liabilities.arrow_forward! Required information [The following information applies to the questions displayed below.] A recent annual report for BubbliCo contained the following information for the period (dollars in millions): Net income Depreciation and amortization Increase in accounts receivable Increase in inventory Increase in prepaid expense Increase in accounts payable Decrease in taxes payable Increase in other current liabilities Cash dividends paid Share repurchases $5,161 1,559 Quality of income ratio 550 364 86 735 193 754 2,545 4,723 2. Compute the quality of income ratio. Note: Enter your answer in decimals, not in percentages, rounded to 2 decimal places.arrow_forwardPritchett Company reported the following year-end data: Cash $ 20,000 Short-term investments 8,400 Accounts receivable (current) 14,800 Inventory 17,600 Prepaid (current) assets 6,700 Total current liabilities 27,000 Compute the (a) current ratio and (b) acid-test ratio.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning