Managerial Accounting
Managerial Accounting
6th Edition
ISBN: 9781259726972
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
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Chapter 13, Problem 5PSA

1.

To determine

To compute: (a) current ratio, (b) acid test ratio,(c) accounts receivable turnover (d) inventory turnover (e) day’s sales in inventory (f) day’s sales uncollected of B Company and K Company.

1.

Expert Solution
Check Mark

Explanation of Solution

(a)

Formula to calculate current ratio is,

    Currentratio= CurrentAssets CurrentLiabilities

Current ratio of B Company:

Given info,

Current assets are $155,440
Current liabilities are $61,340

Substitute $155,440 for current assets and $61,340 for current liabilities.

    Current ratio= $155,440 $61,340 =2.53

Thus current ratio is 2.53.

Working notes:

    Currentassets=Cash+Accountsreceivable+Current notes receivable +Merchasdiseinventory+Prepaidexpenses =$19,500+$37,400+$91,100+$84,440+$5,000 =$155,440

Likewise, current ratio of K Company:

    Current ratio= $238,050 $93,300 =2.55

Thus, current ratio is 2.55.

(b)

Formula to calculate acid test ratio is,

    Acidtestratio= Cash + Short term investments + Accounts receivables CurrentLiabilities

Acid test ratio of B Company:

Given info,

Cash is $19,500.
Accounts receivables are $37,400
Current liabilities are $61,340.

Substitute $19,500 for cash, $37,400 for accounts receivable and $61,340 for current liabilities.

    Acidtestratio= $19,500+$0+$37,400 $61,340 = $56,900 $61,340 =0.93

Thus, acid test ratio is 0.93

Likewise, acid test ratio of K Company:

    Acidtestratio= $34,000+$0+$57,400 $93,300 = $91,400 $93,300 =0.98

Thus, acid test ratio is 0.98.

(c)

Formula to calculate accounts receivable turnover is,

    Accounts receivable turnover= Netsales AccountsReceivable

Accounts receivable turnover of B Company:

Given info,

Net sales are $770,000.
Accounts receivable is 37,400.

Substitute $770,000 for net sales and $37,400 for accounts receivable.

    Accounts receivable turnover= $770,000 $37,400 =20.59

Thus, accounts receivable turnover is 20.59.

Likewise, accounts receivable turnover of K Company:

    Accounts receivable turnover= $880,200 $57,400 =15.33

Thus, accounts receivable turnover is 15.33.

(d)

Formula to calculate inventory turnover is,

    Inventory turnover= Costofgoodssold Inventory

Inventory turnover of B Company

Given info,

Cost of goods sold is $585,100.
Inventory is $84,440

Substitute $585,100 for cost of goods sold and $84,440.

    Inventory turnover= $585,100 $84,440 =6.93

Thus, inventory turnover is 6.93.

Likewise, inventory turnover of K Company:

    Inventory turnover= $632,500 $132,500 =4.77

Thus, inventory turnover is 4.77

(e)

Formula to calculate day’s sales in inventory is,

    Day’s sales in inventory =( Inventoryattheendoftheyear Costofgoodssold )×365

Day’s sales in inventory of B Company

Given info,

Inventory at the end of the year is $84,440
Cost of goods sold is $585,100

Substitute $585,100 for cost of goods sold and $84,440 for inventory at the end of the year.

    Day’s sales in inventory=( $84,440 $858,100 )×365 =36

Thus, day’s sales inventory is 36 day

Likewise, day’s sales in inventory of K Company:

    Day'ssalesininventory=( $132,500 $632,500 )×365 =76.46

Thus, inventory turnover is 76.46 days

(f)

Formula to calculate day’s sales uncollected is,

    Day'ssalesuncollected=( AccountsReceivable NetSales )×365

Day’s sales uncollected of B Company

Given info,

Accounts receivable is $37,400.
Net sales are $770,000.

Substitute $37,400 for accounts receivable and $770,000 for net sales.

    Day'ssalesuncollected=( $37,400 $770,000 )×365 =17.73

Thus, day’s sales uncollected are 17.73 days.

Likewise, day’s sales uncollected of K Company:

    Day'ssalesuncollected=( $57,400 $880,200 )×365 =23.80

Thus, day’s sales uncollected is 23.80 days

2.

To determine

To compute: (a) profit margin ratio (b) total assets turnover ratio,(c) return on total assets ratio (d) return on common stockholder’s equity (e) price earnings ratio (f) dividend yields of B Company and K Company.

2.

Expert Solution
Check Mark

Explanation of Solution

(a)

Formula to calculate Profit margin ratio is,

    Profit margin ratio= Netincome Netsales ×100

Profit margin ratio of B Company

Given info,

Net income is $162,200.
Net sales are $770,000.

Substitute $162,200for net income and $770,000for net sales.

    Profit margin ratio= $162,200 $770,000 ×100 =21.06%

Thus, profit margin ratio is 21.06%.

Likewise, profit margin ratio of K Company:

    Profit margin ratio= $210,400 $880,200 ×100 =24%

Thus, profit margin ratio is 24%.

(b)

Formula to calculate total assets turnover ratio is,

    Total assets turnover ratio= Netsales Averagetotalassets


    Averagetotalassets=( Assets inthebegningoftheyear+ Assetsattheendoftheyear 2 )

Total assets turnover ratio of B Company

Given info,

Net sales are $770,000.
Assets in the beginning of the year are $398,000.
Assets at the end of the year are $445,440.

Substitute $770,000for net sales and $398,000for assets in the beginning of the year and $445,440 at the end of the year.

    Total assets turnover ratio= $770,000 ( $398,000+$445,440 2 ) = $770,000 $421,720 =1.83

Thus, total assets turnover ratio is 1.83.

Likewise, total assets turnover ratio of K Company:

    Total assets turnover ratio= $880,200 ( $382,500+$542,250 2 ) = $880,200 $462,375 =1.90

Thus, total assets turnover ratio is 1.90

(c)

Formula to calculate return on total assets ratio is,

    Return on total assets ratio= Net Income Averagetotalassets
    Averagetotalassets=( Assets inthebegningoftheyear+ Assetsattheendoftheyear 2 )

Return on total assets ratio of B Company

Given info,

Net income is $162,200.
Assets in the beginning of the year are $398,000.
Assets at the end of the year are $445,440.

Substitute $162,200 for net income and $398,000for assets in the beginning of the year and $445,440at the end of the year.

    Return on total assets ratio= $162,200 ( $398,000+$445,440 2 ) = $162,200 $421,720 =0.38

Thus, return on total assets ratio is 0.38

Likewise, return on total assets ratio of K Company:

    Return on total assets ratio= $210,400 ( $382,500+$542,450 2 ) = $210,400 $462,475 =0.45

Thus, return on total assets ratio is 0.45

(d)

Formula to calculate return on common stockholder’s equity is,

    Return on common stockholder’s equity= NetincomePreferreddividends Averagecommon stockholder’s equity ×100

    Averagecommonstock=( Common stock inthebegningoftheyear+ Common stockattheendoftheyear 2 )

Return on common stockholder’s equity of B Company

Given info,

Net income is $162,200.
Common stock in the beginning of the year is $180,000.
Common stock at the end of the year is $180,000.

Substitute $162,200 for net income and $180,000 for common stock in the beginning of the year and $180,000 at the end of the year.

    Return on common stockholder’s equity= $162,200-$0 ( $180,000+$180,000 2 ) ×100 = $162,200 $180,000 ×100 =90.11%

Thus, return on common stockholder’s equity is 90.11%.

Likewise, return on common stockholder’s equity of K Company:

    Return on common stockholder’s equity= $210,400-$0 ( $206,000+$206,000 2 ) ×100 = $210,400 $206,000 ×100 =102.14%

Thus, return on common stockholder’s equity is 102.14%.

(e)

Formula to calculate price earnings ratio is,

    Priceearningsratio= marketvaluepershare earningspershare

Price earnings ratio of B Company

Given info,

Market value per share is $75.
Earning per share is $4.51.

Substitute $75 for market value per share and $4.51 for earnings per share.

    Priceearningratio= $75 $4.51 =16.63

Thus, price earning ratio is 16.63.

Likewise, price earning ratio of K Company:

    Priceearningratio= $75 $5.11 =14.68

Thus, price earning ratio is 14.68.

(f)
Formula to calculate dividend yield is,

    Dividend yield= Annualcashdividendspershare Marketpricepershare

Dividend yield of B Company

Given info,

Cash dividend per share is $3.81.
Market price per share is $75.

Substitute $75 for market price per share and $3.81 for annual cash dividend per share.

    Dividendyield= $3.81 $75 =0.051

Thus, dividend yield is 0.051.

Likewise, dividend yield of K Company:

    Dividendyield= $3.93 $75 =0.052

Thus, dividend yield is 0.052.

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Chapter 13 Solutions

Managerial Accounting

Ch. 13 - Prob. 6DQCh. 13 - Prob. 7DQCh. 13 - Prob. 8DQCh. 13 - Prob. 9DQCh. 13 - Prob. 10DQCh. 13 - Prob. 11DQCh. 13 - Prob. 12DQCh. 13 - Where on the income statement does a company...Ch. 13 - Prob. 14DQCh. 13 - Prob. 15DQCh. 13 - Samsung Refer to Samsung’s financial statements in...Ch. 13 - Prob. 17DQCh. 13 - Prob. 1QSCh. 13 - Prob. 2QSCh. 13 - Prob. 3QSCh. 13 - Prob. 4QSCh. 13 - Prob. 5QSCh. 13 - Prob. 6QSCh. 13 - Prob. 7QSCh. 13 - Prob. 8QSCh. 13 - Prob. 9QSCh. 13 - Prob. 10QSCh. 13 - Prob. 11QSCh. 13 - Prob. 12QSCh. 13 - Prob. 13QSCh. 13 - Morgan Company and Parker Company are similar...Ch. 13 - Which of the following gains or losses would...Ch. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Exercise 13-6 Common-size percents P2 Simon...Ch. 13 - Prob. 7ECh. 13 - Exercise 13-8 Liquidity analysis and...Ch. 13 - Exercise 13-9 Risk and Capital structure analysis...Ch. 13 - Exercise 13-10 Efficiency and Profitability...Ch. 13 - Exercise 13-11 profitability analysis P3 Refer to...Ch. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 - Prob. 15ECh. 13 - Exercise Interpreting financial ratios Refer to...Ch. 13 - Prob. 17ECh. 13 - Prob. 18ECh. 13 - Prob. 1PSACh. 13 - Prob. 2PSACh. 13 - Prob. 3PSACh. 13 - Problem 13-4A Calculation of financial statement...Ch. 13 - Prob. 5PSACh. 13 - Prob. 6PSACh. 13 - Prob. 1PSBCh. 13 - Prob. 2PSBCh. 13 - Prob. 3PSBCh. 13 - Prob. 4PSBCh. 13 - Prob. 5PSBCh. 13 - Problem 13-6BAIncome statement computations and...Ch. 13 - Use the following selected data from Business...Ch. 13 - Use Apple’s financial statements in Appendix A to...Ch. 13 - Prob. 2AACh. 13 - Prob. 3AACh. 13 - Prob. 1BTNCh. 13 - Prob. 2BTNCh. 13 - Prob. 3BTNCh. 13 - Prob. 4BTNCh. 13 - ENTREPRENEURIAL DECISION A1 P1 P2 P3 BTN 13-7...Ch. 13 - Prob. 6BTN
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