ACC7101: MAKING

DECISION WITH
ACCOUNTABILITY
ASSOC PROF DR JAMALLUDIN HELMI HASHIM

GROUP 3 GROUP MEMBERS: MATRICS NO:

NURLIYANA MOHAMAD SHAHIMIN PBS18211017
VIVIEN LIM CHIAU CHIANN PBS18211032
MUHAMMAD FIRDAUS SADALEE PBS18211019
LEONG YU SHENG PBS18208035
WONG JIA JUN PBS18210048
PROBLEM 3.18, PAGE 88
Calculate profitability and liquidity measures. Presented below are the
comparative balance sheet of Hames, Inc. at December 31, 2017 and 2016.
sales for the year ended December 31, 2017, totalled $1,700,000.
HAMES, INC.
Balance Sheets
December 31, 2017 and 2016
2017 2016
Assets
Cash $ 63,000 $ 57,000
Account receivable 285,000 266,000
Merchandise inventory 261,000 247,000
Total current assets $609,000 $570,000
Land 109,000 82,000
Plant and equipment 375,000 330,000
Less: Accumulated depreciation (195,000) (180,000)
Total assets $898,000 $802,000
PROBLEM 3.18, PAGE 88
HAMES, INC.
Balance Sheets
December 31, 2017 and 2016

2017 2016

Liabilities

Short-term debt $ 54,000 $ 51,000

Account payable 168,000 144,000

Other accrued liabilities 68,000 54,000

Total current liabilities $290,000 $249,000

Long-term debt 56,000 105,000

Total liabilities $346,000 $354,000

PROBLEM 3.18, PAGE 88
HAMES, INC.
Balance Sheets
December 31, 2017 and 2016

2017 2016
Stockholders’ Equity
Common stock, no par, 200,000 shares authorized, $224,000 $162,000
80,000 and 50,000 shares issued, respectively
Retained earnings:
Beginning balance $286,000 $217,000
Net income for the year 102,000 84,000
Dividends for the year (60,000) (15,000)
Ending balance $328,000 $286,000
Total stockholders’ equity $552,000 $448,000
Total liabilities and stockholders’ equity $898,000 $802,000
a. Calculate ROI for 2017. Round your percentage
answer to two decimal places.
ROI = Margin X Turnover

• In this case, Net income = $102,000

Sale = $1,700,000
• Margin = Net income / Sales
= $102,000 / $1,700,000
= 6.00 %
• Turnover = Sales / Average Total Assets
= $1,700,000 / (($898,000+$802,000)/2)
= 2.00
• Hence, ROI = Margin X Turnover
= 6.00% X 2.00
= 12.00 %
b. Calculate ROE for 2017. Round your percentage
answer to one decimal places.

ROE = Net Income / Average Stockholders’ Equity

• In this case, Net income = $102,000

Average stockholders’ equity = ($552,000+$448,000) / 2
= $500,000

• Hence, ROE = Net Income / Average Stockholders’ Equity

= $102,000 / $500,000
= 20.4%
c) Calculate working capital at December 31, 2017.

Formula
Working Capital = Current Asset – Current Liabilities

Current Asset = $ 609,000

Current Liabilities = $ 290,000

Working Capital = $ 609,000 – $ 290,000

= $ 319,000
d) Calculate the current ratio at December 31, 2017. Round your answer
to two decimal places.

Formula
Current Ratio = Current Asset / Current Liabilities

Current Asset = $ 609,000

Current Liabilities = $ 290,000

Current Ratio = $ 609,000 / $ 290,000

= 2.10
 e) Calculate the acid-test ratio at December 31, 2017.
round your answer to two decimal places.

Formula

Acid-Test Ratio = (Cash + Marketable Securities + Accounts Receivable)

Current Liabilities

Or

Acid-Test Ratio = (Current Assets - Inventories)

Current Liabilities
 Current Assets = $609,000
Inventory = $261,000
Current Liabilities $290,000

Acid-Test Ratio = (Current Assets - Inventories)

Current Liabilities
= ($609.000 - $261,000)
$290,000
= $348,000
$290,000
= 1.2
f) Assume that on 31st Dec 2017, the treasurer of Hames, Inc., decided
to pay $50,000 of account payable. Explain the impact, if any, this
payment will have on the answers you calculated for part a-d
(increase, decrease or no effect)
Before After (paying Impact
$50,000 to
Account
Payable)
Return of Investment (ROI) 12.00% 12.00% Unchanged
Return of Equity (ROE) 20.4% 20.4% Unchanged
Working Capital $ 319,000 $ 269,000 Decrease
Current Ratio 2.10 1.79 Decrease
Acid Test Ratio 1.20 1.02 Decrease
g) Assume that instead of paying $50,000 of account payable on 31st Dec
2017, the treasurer of Hames, Inc., collected $50,000 of account receivable.
Explain the impact, if any, this receipt will have on the answers you calculated
for part a-d (increase, decrease or no effect)
Before After (receive Impact
$50,000 to
Account
Receivable)

Return of Investment (ROI) 12.00% 11.64% Decrease

Return of Equity (ROE) 20.4% 20.4% Unchanged
Working Capital $ 319,000 $ 369,000 Increase
Current Ratio 2.10 2.27 Increase
Acid Test Ratio 1.20 1.37 Increase