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Solutions Manual, Chapter 15 21
Problem 15-13 (45 minutes)
Effect on
Ratio
Reason for Increase, Decrease, or No Effect
1. Decrease
T
he current ratio is obtained by dividin
g
current assets by
2. Increase
T
he acid-test ratio is obtained by dividin
g
quick assets by
current liabilities. A sale of inventory on account will
increase the quick assets (cash or accounts receivable)
3. Increase
T
he return on equity is obtained by dividin
g
net income by
average stockholders’ equity. The interest rate on the
4. Decrease
T
he times interest earned ratio is obtained by dividin
g
5. Increase
T
he current ratio is obtained by dividin
g
current assets by
current liabilities. Payment of a previously declared cash
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22 Managerial Accounting, 16th Edition
Problem 15-13 (continued)
Effect on
Ratio
Reason for Increase, Decrease, or No Effect
6. No Effect
T
he dividend payout ratio is obtained by dividin
g
the
7. Increase
T
he inventory turnover ratio is obtained by dividin
g
cost of
8. Decrease
T
he debt-to-equity ratio is obtained by dividin
total
liabilities by stockholders’ equity. Sale of inventory at a
9. Decrease
T
he accounts receivable turnover is obtained by dividin
g
sales on account by average accounts receivable. Extended
10. Decrease
Book value per share is obtained by dividin
g
total
stockholders’ equity by the number of common shares
11. No Effect
Book value per share is obtained by dividin
g
total
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Solutions Manual, Chapter 15 23
Problem 15-13 (continued)
Effect on
Ratio
Reason for Increase, Decrease, or No Effect
12. No Effect
Workin
g
capital is obtained by subtractin
g
current liabilities
13. Decrease
Earnin
g
s per share is obtained by dividin
g
net income by
14. Decrease
T
he debt-to-equity ratio is obtained by dividin
total
15. Decrease
T
he acid-test ratio is obtained by dividin
g
quick assets by
16. No Effect
T
he current ratio is obtained by dividin
g
current assets by
current liabilities. Write-off of an uncollectible account
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24 Managerial Accounting, 16th Edition
Problem 15-13 (continued)
17. Increase
T
he price-earnin
g
s ratio is obtained by dividin
g
the market
18. Decrease
T
he dividend yield ratio is obtained by dividin
g
the dividend
© The McGraw-Hill Companies, Inc., 2018. All rights reserved.
Solutions Manual, Chapter 15 25
Problem 15-14 (30 minutes)
1. a. Computation of working capital:
Current assets:
Cash ………………………………. $ 50,000
Marketable securities …………. 30,000
A
T
Current liabilities:
A
ccounts payable ………………. 150,000
A
T
–
b. Computation of the current ratio:
c. Computation of the acid-test ratio:
Cash + Marketable securities + Accounts
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26 Managerial Accounting, 16th Edition
Problem 15-14 (continued)
2.
The Effect on
Working Current Acid-Test
Transaction Capital Ratio Ratio
(a) Issued capital stock for cash ……… Increase Increase Increase
(l) Collected accounts receivable…….. None None None
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Solutions Manual, Chapter 15 27
Problem 15-15 (90 minutes)
This Year Last Year
1.
a.
Earnin
g
s before interest and income
taxes (a) …………………………………. $1,560,000 $1,020,000
b.
T
otal liabilities (a) ………………………… $7,500,000 $5,760,000
c. Gross mar
g
in (a) …………………………. $3,150,000 $2,580,000
g
A
dd afte
r
-tax cost of interest:
–
–
T
A
e. Net income (a) ……………………………… $ 840,000 $ 504,000
A
f. Levera
g
e is positive for this year because the return on equity
T
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28 Managerial Accounting, 16th Edition
Problem 15-15 (continued)
This Year Last Year
2. a. Net income (a) ……………………………….. $840,000 $504,000
A
vera
g
e number of common shares
b. Dividends per share (a)…………………….. $3.60 $2.52
c. Dividends per share (a)…………………….. $3.60 $2.52
d. Market price per share (a) ………………….. $72.00 $40.00
7
Notice from the data given in the problem that the typical P/E ratio
for companies in Lydex Company’s industry is 10. Since Lydex
e. Stockholders’ equity (a) ……………………. $9,600,000 $9,120,000
Number of common shares outstandin
g
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Solutions Manual, Chapter 15 29
Problem 15-15 (continued)
Notice that the market value of common stock is below its book value
for both years. This does not necessarily indicate that the stock is
selling at a bargain price. Market value reflects investors’ expectations
concerning future earnings, whereas book value is a result of already
completed transactions and is geared to the past.
This Year Last Year
3. a. Current assets …………………………………. $7,800,000 $5,940,000
b. Current assets (a) …………………………….. $7,800,000 $5,940,000
c. Quick assets (a) ………………………………. $3,660,000 $3,360,000
A
d. Sales on account (a) …………………………. $15,750,000 $12,480,000
A
g
A
A
vera
g
e collection period,
e. Cost of
g
oods sold (a) ……………………… $12,600,000 $9,900,000
A
g
A
vera
g
e sale period,
f.
A
vera
g
e sale period ………………………… 91.3 days 79.3 days
A
g
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30 Managerial Accounting, 16th Edition
Problem 15-15 (continued)
This Year Last Year
g
. Sales (a) ………………………………………. $15,750,000 $12,480,000
4. With respect to profitability, the return on total assets has improved
From a market performance perspective, the earnings per share
Overall, Lydex’s performance is improving in some areas, but it is not
doing very well relative to its competitors.
A
T