Financial Accounting
3rd Edition
ISBN: 9780078025549
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 7, Problem 7.10BP
Calculate and interpret ratios (LO7–7)
Barry Sanders, likely the best running back to ever play football, has opened a successful used-car dealership. He has noted a higher than normal percentage of sales for trucks and SUVs with hauling capacity at his dealership. He is also aware that several of the best recreational lakes in the state are located nearby. Barry is considering expanding his dealership to include the sale of recreational boats. Barry provides the following projections of net sales, net income, and average total assets in support of his proposal.
| Cars Only | Cars and Boats | |
| Not sales | $6,500,000 | $7,700,000 |
| Not income | 500,000 | 700,000 |
| Average total assets | 1,700,000 | 1,900,000 |
Required:
1. Calculate Barry’s return on assets, profit margin, and asset turnover for cars only.
2. Calculate Barry’s return on assets, profit margin, and asset turnover for cars and boats.
3. Based on these ratios, what recommendation would you make?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Kate is considering expanding and bringing in several employees. To do this she will need a larger facility and to purchase more equipment. Which means additional financing. Answer this: look at the financial statements as if you were a banker considering her for a loan comment on your findings and use calculations to support your answer.
Assume that you desire to operate a food truck business. You have five food trucks.
Some trucks will need more repairs than others. Based on online research and
discussions with other food truck owners, you determine that in a given year the
following possibilities are likely.
The probability of few repairs is 20% and the estimated cost is $2,500
The probability of moderate repairs is 60% with an estimated cost of $5,000
The probability of extensive repairs is 20% with an estimated cost of $25,000.
What is the average expected cash flow out for repairs, based on these
probabilities? Type your answer without commas or decimal places or dollar signs.
To generate leads for new business, Gustin Investment Services offers free financial planning seminars at major hotels in Southwest Florida. Gustin conducts seminars for groups of 25 individuals. Each seminar costs Gustin $3000, and the average first-year commission for each new account opened is $4600. Gustin estimates that for each individual attending the seminar, there is a 0.01 probability that he/she will open a new account.
Determine the equation for computing Gustin’s profit per seminar, given values of the relevant parameters. Round your answers to the nearest dollar.Profit = (New Accounts Opened × $ fill in the blank 1) – $ fill in the blank 2
What type of random variable is the number of new accounts opened? (Hint: Review Appendix 16.1 for descriptions of various types of probability distributions.)The number of new accounts opened is a
random variable with fill in the blank 4 trials and fill in the blank 5 probability of a success on a single trial.
Assume that the…
Chapter 7 Solutions
Financial Accounting
Ch. 7 - Prob. 1RQCh. 7 - What are the two major categories of long-term...Ch. 7 - Prob. 3RQCh. 7 - Prob. 4RQCh. 7 - Prob. 5RQCh. 7 - Prob. 6RQCh. 7 - Equipment includes machinery used in manufacturing...Ch. 7 - Prob. 8RQCh. 7 - Prob. 9RQCh. 7 - Prob. 10RQ
Ch. 7 - Prob. 11RQCh. 7 - How do we decide whether to capitalize (record as...Ch. 7 - Explain the usual accounting treatment for repairs...Ch. 7 - Prob. 14RQCh. 7 - How is the dictionary definition different from...Ch. 7 - What factors must we estimate in allocating the...Ch. 7 - Prob. 17RQCh. 7 - Prob. 18RQCh. 7 - Prob. 19RQCh. 7 - Assume that Little King Sandwiches uses...Ch. 7 - Assume Little King Sandwiches depreciates a...Ch. 7 - Prob. 22RQCh. 7 - Prob. 23RQCh. 7 - What is book value? How do we compute the gain or...Ch. 7 - Prob. 25RQCh. 7 - Prob. 26RQCh. 7 - Prob. 27RQCh. 7 - Prob. 28RQCh. 7 - Determine the initial cost of land (LO71) Fresh...Ch. 7 - Prob. 7.2BECh. 7 - Prob. 7.3BECh. 7 - Compute research and development expense (LO72)...Ch. 7 - Prob. 7.5BECh. 7 - Explain the accounting definition of depreciation...Ch. 7 - BE7–7 El Tapitio purchased restaurant furniture on...Ch. 7 - Prob. 7.8BECh. 7 - Prob. 7.9BECh. 7 - Account for the sale of long-term assets (LO76)...Ch. 7 - Account for the exchange of long-term assets...Ch. 7 - Account for the exchange of long-term assets...Ch. 7 - Prob. 7.13BECh. 7 - Determine the impairment loss (LO78) Vegetarian...Ch. 7 - Prob. 7.15BECh. 7 - McCoys Fish House purchases a tract of land and an...Ch. 7 - Orion Flour Mills purchased a new machine and made...Ch. 7 - Prob. 7.3ECh. 7 - Prob. 7.4ECh. 7 - Prob. 7.5ECh. 7 - Prob. 7.6ECh. 7 - Prob. 7.7ECh. 7 - Prob. 7.8ECh. 7 - Prob. 7.9ECh. 7 - Determine depreciation for the first year under...Ch. 7 - Deformine depreciation under three methods (LO74)...Ch. 7 - E7–12 Togo’s Sandwiches acquired equipment on...Ch. 7 - E7–13 Tasty Subs acquired a delivery truck on...Ch. 7 - Prob. 7.14ECh. 7 - Prob. 7.15ECh. 7 - Prob. 7.16ECh. 7 - Record the sole of equipment (L076) Abbott...Ch. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Prob. 7.20ECh. 7 - The Italian Bread Company purchased land as a...Ch. 7 - Prob. 7.2APCh. 7 - Prob. 7.3APCh. 7 - Prob. 7.4APCh. 7 - Determine depreciation under three methods (LO74)...Ch. 7 - Prob. 7.6APCh. 7 - Prob. 7.7APCh. 7 - Prob. 7.8APCh. 7 - Prob. 7.9APCh. 7 - Calculate and interpret ratios (LO77) University...Ch. 7 - Prob. 7.1BPCh. 7 - Determine the acquisition cost of equipment (LO71)...Ch. 7 - Prob. 7.3BPCh. 7 - Prob. 7.4BPCh. 7 - Determine depreciation under three methods (LO74)...Ch. 7 - Prob. 7.6BPCh. 7 - Prob. 7.7BPCh. 7 - Record the disposal of equipment (LO76) Flip Side...Ch. 7 - Prob. 7.9BPCh. 7 - Calculate and interpret ratios (LO77) Barry...Ch. 7 - Prob. 7.1APCPCh. 7 - Prob. 7.2APFACh. 7 - Prob. 7.3APFACh. 7 - Prob. 7.4APCACh. 7 - Prob. 7.5APECh. 7 - Written Communication At a recent luncheon, you...Ch. 7 - Earnings Management Edward L. Vincent is CFO of...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- To generate leads for new business, Gustin Investment Services offers free financial planning seminars at major hotels in Southwest Florida. Gustin conducts seminars for groups of 25 individuals. Each seminar costs Gustin $3000, and the average first-year commission for each new account opened is $5800. Gustin estimates that for each individual attending the seminar, there is a 0.01 probability that he/she will open a new account. Determine the equation for computing Gustin’s profit per seminar, given values of the relevant parameters. Round your answers to the nearest dollar.Profit = (New Accounts Opened × $( ) – $ ( ) What type of random variable is the number of new accounts opened? (Hint: Review Appendix 16.1 for descriptions of various types of probability distributions.)The number of new accounts opened is a random variable with fill in the blank 4 trials and fill in the blank 5 probability of a success on a single trial. Assume that the number of new accounts…arrow_forwardBecause Natalie has had such a successful first few months, she is considering other opportunities to develop her business. One opportunity is the sale of fine European mixers. The owner of Kzinski Supply Co. has approached Natalie to become the exclusive distributor of these fine mixers in her state. The current cost of a mixer is approximately $575, and Natalie would sell each one for $1,150. Natalie comes to you for advice on how to account for these mixers. Each appliance has a serial number and can be easily identified. Natalie asks you the following questions. 1. "Would you consider these mixers to be inventory or should they be classified as supplies or equipment?" 2. 3. "I've learned a little about keeping track of inventory using both the perpetual and the periodic systems of accounting for inventory. Which system do you think is better? Which one would you recommend for the type of inventory that I want to sell?" "How often do I need to count inventory if I maintain it using…arrow_forwardQuestion: What is the project NPV? You have determined in your mind that you would like to have a businessof your own, although your father runs a family restaurant in yourlocal city. You have therefore, decided to have a medium size snackand cocktails bar which will accommodate the cruise ship passengerswho visit your city. You plan to keep the business for five yearsafter which you will sell it off to your brother John for $2,000,000and go off to do your Master’s Degree in the UK. Though you will beoccupying the establishment from your grandmother for free, you havedecided that you need to make some improvements to the property whichwill cost you $1,500,000. Additionally, you will spend $275,000 inbar stools, tables and decorations. If this space had been leased out,it would have fetched a lease rental of $75,000 per year. You willdepreciate the assets over 7 years using MACRS. You have determinedthat you would need an average cash balance of $15,000 and inventoryof $20,000 while…arrow_forward
- I need the answer as soon as possiblearrow_forwardA famous skateboarder is planning on opening a new indoor skateboard facility in Athens. He wants to name the skate park “Accounting Central” because a lot of accountants are skaters as well. Accounting Central will us a membership model to generate revenue, allowing customers to purchase a monthly membership and gain unlimited access to the park. When operating, Accounting Central is estimated to have $650,000 in assets. Shareholders are anticipating receiving a 15% return on the assets as operating income. The facility’s annual fixed costs are expected to be $96,000. The variable costs per skater are estimated to be $15 per month. After analyzing the market, Accounting Central believes it can sell 150 memberships in the first month. Furthermore, the company has noted that a number of other skaters have started similar skate-parks in the area, leading to high competition in the area. Which of the following statements is incorrect regarding the company’s first month of…arrow_forward- "Jack's T-Shirt Emporioum" produces novelty T-Shirts, with the primary equipment being a screen print machine. a "Jack's" generates $60,000 a year in profit. - Jack (the owner) feels that he could increase sales if he had a new machine with advanced capabilities (e.g. embroidery), so he purchases a new machine for $30,000 (cash). Jack estimates this machine to have an effective useful life of 5 years, and $5,000 residual (salvage) value, so Depreciable Value = $25,000. The new machine will depreciate over 5 years at $5,000 / year. o In this years financial statements, Jack reflects the purchase as a $5,000 expense, thus reducing his profit to $55,000. o Jack will show a $5,000 expense for Machine Purchase over the following 4 years. %3D Quiz#5: In the “Jack's" example, what amount will be recorded in the Cash Flow Statement related to this machine purchase?arrow_forward
- To generate leads for new business, Gustin Investment Services offers free financial planningseminars at major hotels in Southwest Florida. Gustin conducts seminars for groupsof 25 individuals. Each seminar costs Gustin $3,500 and the average first-year commissionfor each new account opened is $5,000. Gustin estimates that for each individualattending the seminar, there is a 0.01 probability that he/she will open a new account. a. Determine the equation for computing Gustin’s profit per seminar, given values of therelevant parameters.arrow_forwardRefer to the investment opportunity for 2025 and calculate the Benefit Cost Ratio (expressed to two decimal places). (Ignore taxes.)arrow_forwardAs a marketing manager for one of the world’s largest automakers, you are responsible for the advertising campaign for a new energy-efficient sports utility vehicle. Your support team has prepared the following table, which summarizes the (year-end) profitability, estimated number of vehicles sold, and average estimated selling price for alternative levels of advertising. The accounting department projects that the best alternative use for the funds used in the advertising campaign is an investment returning 9 percent. In light of the staggering cost of advertising (which accounts for the lower projected profits in years 1 and 2 for the high and moderate advertising intensities), the team leader recommends a low advertising intensity in order to maximize the value of the firm. Do you agree? Explain. Profitability by Advertising Intensity. Profits (in millions) Units sold (in thousands) Average selling price Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 Year…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License