Presented here are the comparative balance sheets of Hames, Inc., at December 31

Question

Presented here are the comparative balance sheets of Hames, Inc., at December 31, 2017 and 2016. Sales for the year ended December 31, 2017, totaled $590,000 HAMES, INC Balance Sheets December 31, 2017 and 2016 2017 2016 Assets Cash $ 23,000 78.000 103,000 S 204,000 50,000 125.000 21,000 2,000 99,000 S 192,000 40,000 10,000 Total current assets Land Plant and equipment Less: Accumulated depreciation Total assets Liabilities Short-term debt Accounts payable Other accrued liabilities (65,000) (60,000) S 314,000 S 282,000 S 18,000 65,600 S 17,000 6,000 18,000 5103,600 111,000 30,000 Total current liabiltes 22,000 125,600 Long-term debt Total liabilities Stockholders' Equity Common stock, no par, 100,000 shares authorized 141 $ 74,000 59,000 85,000 40,000 and 25,000 shares issued, respectively Retained eamings Beginning balance Net income for the year Dividends for the year $ 82,000 52.400 2,000 82,000 1141,000 4,400 188,400 $ 314,000 Ending balance Total stockholders equity Total liabilities and stockholders equity $ 282,000 Required a Calculate ROI for 2017. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) b. Calculate ROE for 2017. (Round your answer to 1 decimal place.)

Explanation / Answer

Answer of Part a:

Margin = Net Income / Sales
Margin = $52,400 / $590,000 *100
Margin = 8.88%

Turnover = Sales / Average Total Assets

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2               
Average Total Assets = ($282,000 + $314,000) / 2
Average Total Assets = $298,000

Turnover = $590,000 / $298,000
Turnover = 1.98

ROI = Margin * Turnover
ROI = 8.88% * 1.98
ROI = 17.58%

Answer of Part b:

Average Stockholders’ Equity = (Beginning Stockholders’ Equity + Ending Stockholders’ Equity) / 2
Average Stockholders’ Equity = ($141,000 + $188,400) /2
Average Stockholders’ Equity = $164,700

ROE = Net Income / Average Stockholders’ Equity
ROE = $52,400 / $164,700 *100
ROE = 31.82%

Answer of Part c:

Working Capital = Current Assets – Current Liabilities
Working Capital = $204,000 - $103,600
Working Capital = $100,400

Answer of Part d:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $204,000 / 103,600
Current Ratio = 1.97

Answer of Part e:

Acid Test Ratio = (Current Assets – Merchandise Inventory) / Current Liabilities
Acid Test Ratio = ($204,000 - $103,000) /$103,600
Acid Test Ratio = $101,000/$103,600
Acid Test Ratio = 0.97

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