
a.
Compute
a.

Explanation of Solution
Working capital: Working capital refers to the excess amount of current assets over its current liabilities of a business. It measures the excess funds that are required for the companies to carry out their day to day operations, excluding any new funds that have been invested during the year. Working capital is calculated by using the formula:
Compute working capital of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Working Capital: |
Table (1)
Thus, the working capitalof Company R for 2015 and 2014 is $98,200 and $96,000 respectively.
b.
Compute
b.

Explanation of Solution
Current ratio: Current ratio is one of the
Compute current ratio of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Current ratio: |
Table (2)
Thus, the current ratioof Company R for 2015 and 2014 is 1.65:1 and 1.79:1 respectively.
c.
Compute quick ratio of Company R for 2015 and 2014.
c.

Explanation of Solution
Quick ratio: It is a ratio used to determine a company’s ability to pay back its current liabilities by liquid assets that are current assets except inventory and prepaid expenses.
Compute quick ratio of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Quick ratio: |
Table (3)
Note: Quick assets include cash, marketable securities and
Thus, the quick ratioof Company R for 2015 and 2014 is 0.59:1 and 0.53:1 respectively.
d.
Compute receivables turnover of Company R for 2015 and 2014.
d.

Explanation of Solution
Account Receivables turnover ratio: Account Receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. This ratio is determined by dividing credit sales and average account receivables.
Compute receivables turnover of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Accounts Receivables turnover: |
Table (4)
Working Note:
Determine the amount ofaverage accounts receivable for 2015.
Determine the amount ofaverage accounts receivable for 2014.
Thus, the accounts receivable turnoverof Company R for 2015 and 2014 is 4.60 times and 4.51 times respectively.
e.
Compute average days to collect account receivable of Company R for 2015 and 2014.
e.

Explanation of Solution
Average days to collect accounts receivable: This ratio is used to determine the number of days a particular company takes to collect accounts receivables. It is calculated by using the formula:
Compute average days to collect receivable of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Average days to collect accounts receivable: |
Table (5)
Note: Refer table (4) for the values of receivable turnover.
Thus, the average days to collect receivableof Company R for 2015 and 2014 are79 days and 81 days respectively.
f.
Compute inventory turnover of Company R for 2015 and 2014.
f.

Explanation of Solution
Inventory Turnover Ratio: This ratio is a financial metric used by a company to quantify the number of times inventory is used or sold during the accounting period. It is calculated by using the formula:
Compute inventory turnover of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Inventory turnover: |
Table (6)
Working Note:
Determine the amount ofaverage inventory for 2015.
Determine the amount ofaverage inventory for 2014.
Thus, the inventory turnoverof Company R for 2015 and 2014 is 0.86 times and 0.73 times respectively.
g.
Compute number of days to sell inventory of Company R for 2015 and 2014.
g.

Explanation of Solution
Numbers of days to sell inventory: This ratio is determined as the number of days a particular company takes to make sales of the inventory available with them. It is calculated by using the formula:
Compute number of days to sell inventory of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Number of days to sell inventory: |
Table (7)
Note: Refer table (6) for the values of inventory turnover.
Thus, the number of days to sell inventoryof Company R for 2015 and 2014 is 424 days and 500 days respectively.
h.
Compute debt to assets ratio of Company R for 2015 and 2014.
h.

Explanation of Solution
Debt to assets ratio: The debt to asset ratio shows the relationship between total asset and the total liability of the company. Debt ratio reflects the financial strategy of the company. It is used to measure the percentage of company’s assets that are financed by long term debts.Debt to assets ratio is calculated by using the formula:
Compute debt to assets ratio of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Debt to assets ratio: |
Table (8)
Thus, the debt to assets ratioof Company R for 2015 and 2014 is 49.2% and 48.0% respectively.
i.
Compute debt to equity ratio of Company R for 2015 and 2014.
i.

Explanation of Solution
Debt–to-equity ratio: The debt-to-equity ratio indicates that the company’s debt as a proportion of its
Compute debt to equity ratio of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Debt to equity ratio: |
Table (9)
Thus, the debt to equity ratioof Company R for 2015 and 2014 is 0.97:1 and 0.93:1 respectively.
j.
Compute number of times interest earned of Company R for 2015 and 2014.
j.

Explanation of Solution
Number of times interest earned: Number of times interest is earned quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense.
Compute number of times interest earned of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Number of times interest was earned: |
Table (10)
Working Note:
Determine the amount of earnings before interest and expenses for 2015.
Determine the amount of earnings before interest and expenses for 2014.
Thus, the number of times interest earned ratioof Company R for 2015 and 2014 is 7.88 times and 8.61 times respectively.
k.
Compute plant assets to long term debt ratio of Company R for 2015 and 2014.
k.

Explanation of Solution
Plant assets to long term debt: Plant assets to long term debt ratio measure the value of assets per each dollar of long term liabilities. It is calculated by using the formula:
Compute plant assets to long term debt ratio of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Plant assets to long-term debt: |
Table (11)
Thus, the plant assets to long term debt ratio of Company R for 2015 and 2014are 2.05:1 and 2.01:1 respectively.
l.
Compute net margin of Company R for 2015 and 2014.
l.

Explanation of Solution
Net profit margin: It is one of the profitability ratios. Profit margin ratio is used to measure the percentage of net income that is being generated per dollar of revenue or sales.
Computenet margin of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Net margin: |
Table (12)
Thus, the net margin of Company R for 2015 and 2014is13.91% and 15.61% respectively.
m.
Compute turnover of assets of Company R for 2015 and 2014.
m.

Explanation of Solution
Turnover of assets: Turnover of assetsis a ratio that measures the productive capacity of the total assets to generate the sales revenue for the company. Thus, it shows the relationship between the net sales and the average total assets. Turnover of assets is calculated as follows:
Compute turnover of asset of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Turnover of assets: |
Table (13)
Note: Since, the beginning total assets for 2014are not given. So, the total amount of total assets for 2014 is assumed as average total assets.
Working note:
Determine the amount ofaverage total assets for 2015.
Thus, the turnover of asset of Company R for 2015 and 2014 are 0.42 and 0.41 respectively.
n.
Compute
n.

Explanation of Solution
Return on investment (assets): Return on investments (assets) is the financial ratio which determines the amount of net income earned by the business with the use of total assets owned by it. It indicates the magnitude of the company’s earnings with relative to its total assets. Return on investment is calculated as follows:
Compute return on investment of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Return on investment: |
Table (14)
Note: Since, the beginning total assets for 2014are not given. So, the total amount of total assets for 2014 is assumed as average total assets.
Working note:
Determine the amount ofaverage total assets for 2015.
Thus, the return on investment of Company R for 2015 and 2014 are 5.86% and 6.36% respectively.
o.
Compute return on equity of Company R for 2015 and 2014.
o.

Explanation of Solution
Return on equity: It is a profitability ratio that measures the profit generating ability of the company from the invested money of the shareholders. The formula to calculate the return on equity is as follows:
Compute return on equity of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Return on equity: |
Table (15)
Note: Since, the beginning stockholders’ equity for 2014 is not given. So, the total amount of stockholders’ equity for 2014 is assumed as average total stockholders’ equity.
Working Note:
Determine the amount ofaverage total stockholders’ equity for 2015.
Thus, the return on equityof Company R for 2015 and 2014 are 11.42% and 12.23% respectively.
p.
Compute earnings per share of Company R for 2015 and 2014.
p.

Explanation of Solution
Earnings per Share: Earnings per share help to measure the profitability of a company. Earnings per share are the amount of profit that is allocated to each share of outstanding stock.
Compute earnings per share of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Earnings per share: |
Table (16)
Thus, the earnings per shareof Company R for 2015 and 2014 are $2.88 per share and $2.96 per share respectively.
q.
Compute book value per share of common stock of Company R for 2015 and 2014.
q.

Explanation of Solution
Book value per share of common stock: This ratio is a measure of a share of common stock that is used to determine the value of per share based on the equity available to the common stockholders. This ratio is calculated by using the formula:
Compute book value per share of common stock of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Book value per share of common stock: |
Table (17)
Thus, the book value per share of common stockof Company R for 2015 and 2014 are $21.22 per share and $18.80 per share respectively.
r.
Compute price-earnings ratio of Company R for 2015 and 2014.
r.

Explanation of Solution
Price/Earnings Ratio: The price/earnings ratio shows the market value of the amount invested to earn $1 by a company. It is major tool used by investors for making decisions related to the investment in a company.
Compute price-earnings ratio of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Price-earnings ratio: |
Table (18)
Note: The earnings per share for both years are computed in requirement p.
Thus, the price-earnings ratioof Company R for 2015 and 2014 are $4.34 and $3.96 respectively.
s.
Compute dividend yield on common stock of Company R for 2015 and 2014.
s.

Explanation of Solution
Dividend yield on common stock: Dividend yield ratio indicates how much percentage of share prices a company pays out in the form of dividends price. The formula to calculate the dividend yield percentage is as follows:
Compute dividend yield on common stock of Company R for 2015 and 2014:
Ratios and Formula | 2015 | 2014 |
Dividend yield on common stock: |
Table (19)
Thus, the dividend yield on common stockof Company R for 2015 and 2014 are 3.68% and 3.91% respectively.
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Chapter 9 Solutions
SURVEY OF ACCOUNTING-ACCESS
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