Instructor’s Manual / Solutions Manual
E3.15.
b.
(continued)
Without Loan With Loan
Current assets ……….. ……….. ……….. ……….. $180,000 $240,000
E3.16.
a.
1.9 Current ratio = (Current assets / $262,000 Current liabilities)
Current assets = $497,800
b.
Both current assets and current liabilities would be $33,400 greater at April 30, if the
payment on April 29 had not been made.
c.
Working capital at April 30 is not affected because both current assets and current
liabilities would decrease by the same amount (had the $33,400 payment been made on
April 29). However, the current ratio was increased (from 1.8 to 1.9) as a result of the
P3.17.
a.
ROI = Margin * Turnover
= (Net earnings attributable to Campbell Soup Company / Net sales)
* (Net sales / Average total assets)
b.
ROE = Net earnings attributable to Campbell Soup Company /
c.
Working capital = Current assets – Current liabilities
8/3/14 7/28/13
Current assets ……… ……….. ……….. ……….. ……….. ……….. $2,100 $2,221
d.
Current ratio = Current assets / Current liabilities
8/3/14 7/28/13
Current assets ……… ……….. ……….. ……….. ……….. ……… $2,100 $2,221
e.
Total (quick assets) … ……….. ……….. ……….. ……….. ……… $ 902 $ 968
Acid-test ratio = (Cash + Short-term securities + Accounts and Notes receivable)
Current liabilities
8/3/14 7/28/13
Cash and cash equivalents ….. ……….. ……….. ……….. ……… $ 232 $ 333
Accounts receivable, net ……. ……….. ……….. ……….. ……….. 670 635
P3.18.
a.
ROI = Margin * Turnover
b.
ROE = Net income / Average stockholders’ equity
c.
Working capital = $609,000 Current assets – $290,000 Current liabilities = $319,000
Current ratio = ($609,000 Current assets / $290,000 Current liabilities) = 2.10
Acid test ratio = (Cash + Accounts receivable) / Current liabilities
f.
Solution approach: Think about the effects of this entry on the balance sheet, then
indicate the impact of these effects on the respective ratios as either increase, decrease, or
no effect. Finally, explain why each ratio is affected in the way that it is by reference to
the impact on the numerator and denominator of each ratio.
ROI for the year ended December 31, 2017
Increase. The payment of an account payable decreases current liabilities and also
decreases current assets. This entry has no impact on the income statement, so the
numerator of the ROI calculation (net income) is unaffected. However, now having
less cash, Hames would also have a lower average total assets in the denominator
P3.18.
g.
(continued)
Solution approach: Same as part f above:
ROI for the year ended December 31, 2017:
No effect. The collection of an account receivable increases one current asset and
P3.19.
a.
Working capital = Current assets – Current liabilities
1/31/17 1/31/16
Current assets ……… ……….. ……….. ……….. ……….. ……….. ……….. $ 42 $ 44
– Current liabilities …. ……….. ……….. ……….. ……….. ……….. ……….. (30) (20)
P3.20.
a.
Working capital = Current assets – Current liabilities
8/31/17 8/31/16
Current assets ……… ……….. ……….. ……….. ……….. ……….. ……….. $143 $117
– Current liabilities …. ……….. ……….. ……….. ……….. ……….. ……….. (65) (90)
= Working capital …… ……….. ……….. ……….. ……….. ……….. ……….. $ 78 $ 27
Current ratio = Current assets / Current liabilities
b.
Although both working capital and the current ratio at August 31, 2017 are greater than at
August 31, 2016, cash and marketable securities have decreased substantially (from $48 to
P3.21.
3.0 Turnover = (Sales / $7,000,000 Average total assets)
Sales required as a manufacturer = $21,000,000
7.2 Turnover = (Sales / $2,000,000 Average total assets)
Chapter 3 Fundamental Interpretations Made from Financial Statement Data
P3.22.
a.
ROI = (36% Margin * 0.5 Turnover) = 18%
b.
18% ROI = (20% Margin * Turnover)
Turnover = 0.9
c.
If margin were reduced from 36% to 20% via the price lowering strategy, sales would have
to increase by $2,000,000 (from $2,500,000 to $4,500,000) for Charlie to earn the same
d.
operating expenses of his business, which would reduce margin. However, successful
increase.
By increasing marketing efforts (i.e., kicking off a new advertising campaign, or
conducting more extensive market research), Charlie would also be increasing the
e.
Solution approach: The following strategies may be worth considering for a “high-price,
high-service” retail furniture store when faced with new competition:
Reduction in inventory carrying costs via careful screening of existing inventory.
For a furniture store, the inventory available for sale and the building the store is
located in are normally the largest assets on the balance sheet. In the short-term,
there is probably not much that Charlie can do to control building occupancy costs.
Labor saving strategies might also be worth considering. Although the problem
does not give much information to work from, one might infer that a “high service”