Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Question
Chapter 3, Problem 3.16E
(1)
To determine
Ratio Analysis:
Ratio analysis is a tool to analyze the financial statements of a company which expresses a mathematical relationship among the items of financial statements.
To determine: The
(1)
Expert Solution
Explanation of Solution
Current ratio:
Current ratio is a
Determine total current assets:
Determine total current liabilities:
Given,
Conclusion
The current ratio of HB Co. is 2.25.
(2)
To determine
The acid test ratio
(2)
Expert Solution
Explanation of Solution
Acid - Test ratio:
Acid - test ratio or Quick ratio is a liquidity ratio, which displays how current liabilities are paid by the current assets excluding prepaid expenses and inventories. Acid - test ratio is used to measure the company’s immediate short term liquidity. Current assets include cash and cash equivalents, marketable securities and short term investments. Acid-test ratio can be calculated using the formula:
Determine total quick assets:
Determine total current liabilities:
Given,
Conclusion
The acid-test ratio of HB Co. is 1.375.
(3)
To determine
Debt equity ratio:
Debt equity ratio is a long term solvency ratio, which expresses the relationship between own funds (shareholders’ equity) and loan funds (debt). This ratio shows the proportion of debts and shareholders’ equity to finance assets. It is calculated by dividing the total liabilities by total shareholders’ equity.
To determine: The debt equity ratio
(3)
Expert Solution
Explanation of Solution
Determine total liabilities:
Determine total shareholders’ equity:
Conclusion
The debt equity ratio of HB Co. is 0.65.
(4)
To determine
Times interest earned ratio:
Times interest earned ratio indicates the relationship between earnings before interest and tax (EBIT) and interest expense. The purpose of the ratio is to know the payment of interest expense with respect to the company’s earnings.
To determine: The times interest earned ratio.
(4)
Expert Solution
Explanation of Solution
Conclusion
The times interest earned ratio of HB Co. is 7.5 times.
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Students have asked these similar questions
Problem #1
The following balance sheet and income statement data is given:
31-Dec
Yr 2021
Yr 2020
Cash
$4,300
$3,700
Accounts receivable (net)
22,000
23,400
Inventories
10,000
7,000
Plant assets (net)
75,000
86,000
Total assets
111,300
120,100
Accounts payable
12,370
11,100
Bonds payable
70,000
70,000
Total liabilities
82,370
81,100
Common stock, $10 par
65,000
59,000
Paid-in capital
10,000
10,000
Retained earnings
24,300
20,600
Total stockholders’ equity
99,300
89,600
Net credit sales
100,000
Cost of goods sold
60,350
Gross profit
39,650
Net income
14,000
REQUIRED:
Compute the following ratios for 2021.
NOTE: Copy and paste the information below into the answer box first and then show your calculation steps for this problem to receive credits.
(1) Accounts receivable turnover=____________________
(2) Inventory turnover=__________________
(3) Accounts payable…
QUESTION 9
On Dec. 31, 2021, Windsor Mold Co. has disclosed some of the company's financial data:
Current Assets:
$60 million
Long-Term Assets:
$140 million
Total Net Worth:
$125 million
Total Long-Term Liabilities: $30 million
Calculate the company's Current Ratio =?
Current Ratio = 1.50
Current Ratio = 1.25
Current Ratio = 1.67
Current Ratio = 1.33
O Current Ratio = 1.10
B.
Working Capital
=
Current Assets - Current Liabilities
2021
=
Working Capital
$263,000 - $50,000 $213,000
2022
Working Capital =
$347,000 $69,000 = $278,000
Current Ratio =
Current Assets
Current Liabilities
2021
2022
Current Ratio
=
$263,000
$50,000
$347,000
$69,000
=
5.3:1
5.0:1
Debt to Total Assets
= Total Liabilities
Total Assets
2021
2022
=
$180,000
$382,000
$184,000
$487,000
=
47.1%
37.8%
C.
The working capital has increased between 2021 and 2022, indicating greater liquidity for the firm in its ability to pay its current liabilities as they become due. The current ratio has
decreased between 2021 and 2022; however, it is still quite high. Note also that there is a substantial portion of the current assets in cash and accounts receivable, which may be
converted into cash quickly (assuming the receivables are collectible). The company, therefore, should not have any problems in paying its current liabilities as they become due.
The debt to total assets indicates the percentage…
Chapter 3 Solutions
Intermediate Accounting
Ch. 3 - Prob. 3.1QCh. 3 - Prob. 3.2QCh. 3 - Define current assets and list the typical asset...Ch. 3 - Prob. 3.4QCh. 3 - Prob. 3.5QCh. 3 - Prob. 3.6QCh. 3 - Describe the common characteristics of assets...Ch. 3 - Prob. 3.8QCh. 3 - Prob. 3.9QCh. 3 - Define the terms paid-in-capital and retained...
Ch. 3 - Disclosure notes are an integral part of the...Ch. 3 - A summary of the companys significant accounting...Ch. 3 - Define a subsequent event.Ch. 3 - Prob. 3.14QCh. 3 - Prob. 3.15QCh. 3 - Prob. 3.16QCh. 3 - Prob. 3.17QCh. 3 - Show the calculation of the following solvency...Ch. 3 - Prob. 3.19QCh. 3 - Prob. 3.20QCh. 3 - (Based on Appendix 3) Segment reporting...Ch. 3 - Prob. 3.22QCh. 3 - Prob. 3.23QCh. 3 - Current versus long-term classification LO32,...Ch. 3 - Balance sheet classification LO32, LO33 The trial...Ch. 3 - Prob. 3.3BECh. 3 - Balance sheet classification LO32, LO33 Refer to...Ch. 3 - Balance sheet classification LO32, LO33 The...Ch. 3 - Balance sheet classification LO32, LO33 You have...Ch. 3 - Balance sheet preparation; missing elements LO32,...Ch. 3 - Financial statement disclosures LO34 For each of...Ch. 3 - Calculating ratios LO38 Refer to the trial...Ch. 3 - Prob. 3.10BECh. 3 - Calculating ratios; solving for unknowns LO38 The...Ch. 3 - Balance sheet; missing elements LO32, LO33, LO38...Ch. 3 - Balance sheet classification LO32, LO33 The...Ch. 3 - Balance sheet classification LO32, LO33 The...Ch. 3 - Balance sheet preparation LO32, LO33 The...Ch. 3 - Balance sheet preparation LO32, LO33 The...Ch. 3 - Balance sheet; Current versus long-term...Ch. 3 - Prob. 3.7ECh. 3 - Prob. 3.8ECh. 3 - Balance sheet preparation LO32, LO33 The...Ch. 3 - Financial statement disclosures LO34 The...Ch. 3 - Prob. 3.11ECh. 3 - Prob. 3.12ECh. 3 - Prob. 3.13ECh. 3 - FASB codification research LO32, LO34 Access the...Ch. 3 - Prob. 3.15ECh. 3 - Prob. 3.16ECh. 3 - Prob. 3.17ECh. 3 - Calculating ratios; solve for unknowns LO38 The...Ch. 3 - Prob. 3.19ECh. 3 - Effect of management decisions on ratios LO38...Ch. 3 - Prob. 3.21ECh. 3 - Prob. 3.22ECh. 3 - Balance sheet preparation LO32, LO33 Presented...Ch. 3 - Balance sheet preparation; missing elements LO32,...Ch. 3 - Balance sheet preparation LO32, LO33 The...Ch. 3 - Balance sheet preparation LO32, LO33 The...Ch. 3 - Balance sheet preparation LO32, LO33 The...Ch. 3 - Prob. 3.6PCh. 3 - Balance sheet preparation; errors LO32, LO33 The...Ch. 3 - Balance sheet; errors; missing amounts LO32, LO33...Ch. 3 - Balance sheet preparation LO32 , LO33 Presented...Ch. 3 - Prob. 3.10PCh. 3 - Communication Case 31 Current versus long-term...Ch. 3 - Analysis Case 32 Current versus long- term...Ch. 3 - Prob. 3.4BYPCh. 3 - Judgment Case 35 Balance sheet; errors LO32...Ch. 3 - Prob. 3.6BYPCh. 3 - Real World Case 37 Balance sheet and significant...Ch. 3 - Judgment Case 38 Post fiscal year-end e vents ...Ch. 3 - Prob. 3.9BYPCh. 3 - Prob. 3.10BYPCh. 3 - Prob. 3.11BYPCh. 3 - Analysis Case 314 Balance sheet information LO32...Ch. 3 - Prob. 3.15BYPCh. 3 - Ethics Case 316 Segment reporting Appendix 3 You...Ch. 3 - Prob. 1CCTC
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