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b.
PROBLEM 14.8
A
HARRISON ELECTRONICS, INC. (concluded)
Obtaining the loan will be desirable to stockholders because the return on average assets
(16%) is greater than the prospective rate of payment to creditors (10%). In other words, the
35 Minutes, Medium
a.
A
nothe
r
Imports
World Inc.
(
1
)
Workin
g
ca
p
ital:
(
$53,000 + $75,000 + $84,000 - $105,000
)
107,000
$
(
$22,000 + $70,000 + $160,000 - $100,000
)
152,000
$
PROBLEM 14.9
A
A
NOTHER WORLD AND
IMP
O
RT
S
, IN
C
.
b.
PROBLEM 14.9
A
ANOTHER WORLD AND IMPORTS, INC. (concluded)
Although Imports, Inc., has a larger dollar amount of working capital and a higher current
ratio, Another World has the higher-quality working capital. The quality of working capital
is determined by the nature of the current assets comprising the working capital and the
length of time required to convert these assets into cash. Over half of Another World’s
current assets consist of cash and receivables. Most of Imports, Inc.’s working capital is
20 Minutes, Easy
a. Common size income statement:
Déco
r
Industry
I
nc.
A
verag
e
Sales
(
net
)
100
%
100
%
Cost of
g
oods sold
61
69
Gross
p
rofit on sales
39%
31%
SOLUTIONS TO PROBLEM SET B
PROBLEM 14.1B
DECOR, INC.
25 Minutes, Medium
2015 201
4
a. Net sales:
(
$150,000 ÷ .08
)
1,875,000
$
(
$170,000 ÷ .10
)
1,700,000
$
PROBLEM 14.2B
FREE TIME, INC.
e.
PROBLEM 14.2B
Favorable and unfavorable trends:
Favorable trends. One favorable trend is the $175,000 increase in net sales, which represented
an increase of about 10% over the prior year. A second favorable trend is the decrease in
FREE TIME, INC. (concluded)
15 Minutes, Easy
a. Current assets:
Cash 61,000$
Marketable securitie
s
175,000
PROBLEM 14.3B
GLAVEN, INC.
25 Minutes, Easy
(Dollars in
Millions)
a. Current assets:
Cash 72.4$
Receivables 150.
4
Merchandise inventories 1,400.0
Prepaid expenses 98.0
Total current assets 1,720.8
$
PROBLEM 14.4B
CHEZO, INC.
c.
PROBLEM 14.4B
CHEZO, INC. (concluded)
No. It is difficult to draw conclusions from only the above ratios. Chezo’s current ratio and
quick ratio are well below “safe” levels, according to traditional rules of thumb. On the other
Thousands)
a. (1) Quick assets:
Cash 49,630$
(2) Current assets:
Cash 49,630$
(3) Current liabilities:
Notes payable to banks (due within one year) 28,000$
Accounts payable 4,900
(2) Current ratio:
Current assets (part a) 190,720$
(3) Working capital:
Current assets (part a) 190,720$
