Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
Question
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Chapter 13, Problem 5PSB

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 F Company and B Company.

1.

Expert Solution
Check Mark

Explanation of Solution

(a)

Formula to calculate current ratio is,

    Currentratio= CurrentAssets CurrentLiabilities

F Company

Given info,

Current assets are $205,200.
Current liabilities are $90,500.

Substitute $205,200 for current assets and $90,500 for current liabilities.

    Current ratio= $205,200 $90,500 =2.27

Thus, current ratio is 2.27.

Working notes:

Calculation of current assets,
Currentassets=( Cash+Accountsreceivable+Current notes receivable +Merchasdiseinventory+Prepaidexpenses ) =$20,000+$77,100+$11,600+$86,800+$9,700 =$205,200

B Company

    Current ratio= $208,100 $97,000 =2.15

Thus, current ratio is 2.15.

(b)

Formula to calculate acid test ratio is,

    Acidtestratio= Cash + Short term investments + Accounts receivables CurrentLiabilities

F Company:

Given,
Cash is $20,000.
Accounts receivables are $77,100
Current liabilities are $90,500.

Substitute $20,000 for cash, $77,100 for accounts receivable and $90,500 for current liabilities.

    Acidtestratio= $20,000+$0+$77,100 $90,500 = $97,100 $90,500 =1.07

Thus, acid test ratio is 1.07

B Company:

    Acidtestratio= $36,500+$0+$70,500 $97,000 = $107,000 $97,000 =1.10

Thus, acid test ratio is 1.10.

(c)

Formula to calculate accounts receivable turnover is,

    Accounts receivable turnover= Netsales Average accountsReceivable
    Averageaccountreceivable=( accountreceivable inthebegningoftheyear+ accountreceivable attheendoftheyear 2 )

F Company

Given,
Net sales are $393,600.
Accounts receivable in the beginning of the year is $72,200.
Accounts receivable at the end of the year is $77,100.

Substitute $393,600 for net sales and $72,200 for accounts receivable in the beginning of the year and $77,100 at the end of the year.

    Accounts receivable turnover= $393,600 ( $72,200+$77,100 2 ) = $393,600 $74,650 =5.27

Thus, accounts receivable turnover is 5.27.

B Company:

    Accounts receivable turnover= $667,500 ( $73,300+$70,500 2 ) = $667,500 $71,900 =9.28

Thus, accounts receivable turnover is 9.28.

(d)

Formula to calculate inventory turnover is,

    Inventory turnover= Costofgoodssold Average Inventory
    Averageinventory=( Inventory inthebegningoftheyear + Inventory attheendoftheyear 2 )

F Company

Given,
Cost of goods sold is $290,600.
Inventory in the beginning of the year is $105,100.
Inventory at the end of the year is $86,800.

Substitute $290,600 for cost of goods sold and $105,100 for inventory in the beginning of the year and $86,800 at the end of the year.

    Inventory turnover= $290,600 ( $105,100+$86,800 2 ) = $290,600 $95,950 =3.03

Thus, inventory turnover is 3.03.

B Company:

    Inventory turnover= $480,000 ( $80,500+$82,000 2 ) = $480,000 $81,250 =5.91

Thus, inventory turnover is 5.91.

(e)

Formula to calculate day’s sales in inventory is,

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

F Company

Given,
Inventory at the end of the year is $86,800.
Cost of goods sold is $290,600.

Substitute $290,600 for cost of goods sold and $86,800 for inventory at the end of the year.

    Day’s sales in inventory=( $86,800 $290,600 )×365 =109.02

Thus, day’s sales inventory is 109.02 day

B Company:

    Day'ssalesininventory=( $82,000 $480,000 )×365 =62.35

Thus, inventory turnover is 62.35 days

(f)

Formula to calculate day’s sales uncollected is,

    Day'ssalesuncollected=( AccountsReceivable NetSales )×365

F Company

Given,
Accounts receivable is $77,100.
Net sales are $393,600.

Substitute $77,100 for accounts receivable and $393,600 for net sales.

    Day'ssalesuncollected=( $77,100 $393,600. )×365 =77.5

Thus, day’s sales uncollected are 77.5 days.

B Company:

    Day'ssalesuncollected=( $70,500 $667,500 )×365 =38.55

Thus, day’s sales uncollected is 38.55 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

F Company

Given,
Net income is $33,850.
Net sales are $393,600.

Substitute $33,850 for net income and $393,600 for net sales.

    Profitmargin ratio= $33,850 $393,600 ×100 =8.6%

Thus, profit margin ratio is 8.6%.

B Company:

    Profit margin ratio= $61,700 $667,500 ×100 =9.24%

Thus, profit margin ratio is 9.24%.

(b)

Formula to calculate total assets turnover ratio is,

    Total assets turnover ratio= Netsales Averagetotalassets
    Averagetotalassets=( Assets inthebegningoftheyear+ Assetsattheendoftheyear 2 )

F Company

Given,
Net sales are $393,600.
Assets in the beginning of the year are $383,400.
Assets at the end of the year are $382,100.

Substitute $393,600 for net sales and $383,400 for assets in the beginning of the year and $382,100 at the end of the year.

    Total assets turnover ratio= $393,600 ( $383,400+$382,100 2 ) = $393,600 $382,750 =1.03

Thus, total assets turnover ratio is 1.03.

B Company:

    Total assets turnover ratio= $667,500 ( $443,000+$460,400 2 ) = $667,500 $451,700 =1.48

Thus, total assets turnover ratio is 1.48.

(c)

Formula to calculate return on total assets ratio is,

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

F Company

Given,
Net income is $33,850.
Assets in the beginning of the year are $383,400.
Assets at the end of the year are $382,100.

Substitute $33,850 for net income and $383,400 for assets in the beginning of the year and $382,100 at the end of the year.

    Return on total assets ratio= $33,850 ( $383,400+$382,100 2 ) = $33,850 $382,750 =0.09

Thus, return on total assets ratio is 0.09

B Company:

    Return on total assets ratio= $61,700 ( $443,000+$460,400 2 ) = $61,700 $451,700 =0.14

Thus, return on total assets ratio is 0.14

(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 )

F Company

Given,
Net income is $33,850.
Common stock in the beginning of the year is $133,000.
Common stock at the end of the year is $133,000.

Substitute $33,850 for net income and $133,000 for common stock in the beginning of the year and $133,000 at the end of the year.

    Return on common stockholder’s equity= $33,850-$0 ( $133,000+$133,000 2 ) ×100 = $33,850 $133,000 ×100 =25.45%

Thus, return on common stockholder’s equity is 25.45%.

B Company:

    Return on common stockholder’s equity= $61,700-$0 ( $141,000+$141,000 2 ) ×100 = $61,700 $141,000 ×100 =43.76%

Thus, return on common stockholder’s equity is 43.76%.

(e)

Formula to calculate price earnings ratio is,

    Priceearningsratio= marketvaluepershare earningspershare

F Company

Given,
Market value per share is $25.
Earnings per share are $1.27.

Substitute $25 for market value per share and $1.27 for earnings per share.

    Priceearningratio= $25 $1.27 =19.69

Thus, price earning ratio is $19.69.

B Company:

    Priceearningratio= $25 $2.19 =11.42

Thus, price earning ratio is $11.42.

(f)

Formula to calculate dividend yield is,

    Dividend yield= Annualcashdividendspershare Marketpricepershare

F Company

Given,
Cash dividend per share is $1.50.
Market price per share is $25.

Substitute $25 for market price per share and $1.50 for annual cash dividend per share.

    Dividendyield= $1.50 $25 =0.06

Thus, dividend yield is $0.06.

B Company:

    Dividendyield= $1.50 $25 =0.06

Thus, dividend yield is $0.06.

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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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