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Business Accounting Horngren's Financial & Managerial Accounting

a) Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company. To determine: The financial ratios for 2017. Compute current ratio of Incorporation D for the year 2017 . Current ratio = Current assets Current liabilities = $1,485,374 $34,100 = 43.56 Explanation: Current ratio is used to determine the relationship between current assets and current liabilities. Formula: Current ratio = Current assets Current liabilities The ideal current ratio is 2:1. Total current assets and current liabilities are determined as below: Current assets = Cash + Accounts receivable + Office supplies = $ 1 , 457 , 524 + $ 25 , 700 + $ 2 , 150 = $1,485,374 Current liabilities = { Accounts payable + Salaries payable + Interest payable } = $7,300 + $1,800 + $25,000 = $ 34 , 100 Conclusion: Thus, current ratio for the year 2017 is 43.56. b) To Compute: the cash ratio of Incorporation D for the year 2017. Compute cash ratio of Incorporation D for the year 2017 . Cash ratio = Cash + Cash equivalents Total current liabilities Cash ratio = $1,457,524 + $0 $34,100 = 42 .74 Explanation: Cash ratio is determined by dividing sum of cash and cash equivalents and total current liabilities. Conclusion: Thus, cash ratio for the year 2017 is 42.74. c) To Compute: the debt ratio of Incorporation D for the year 2017. Compute debt ratio of Incorporation D for the year 2017 . Debt ratio = Total liabilities Total assets = $1,333,238 $1,568,478 = 85% Explanation: Debt ratio is determined by dividing total liabilities and total assets. Formula: Debt ratio = Total liabilities Total assets Conclusion: Thus, debt ratio for the year 2017 is 85%. d) To Compute: the debt equity ratio of Incorporation D for the year 2017. Compute debt to equity ratio of Incorporation D for the year 2017 . Debt to equity = Total liabilities Total stockholders' equity = $ 1 , 333 , 238 $ 235 , 240 = 5 .67 times Explanation: Debt to equity ratio is determined by dividing total liabilities and total stockholders’ equity . Formula: Debt to equity = Total liabilities Total stockholders' equity Conclusion: Thus, debt to equity ratio is 5.67. e) To Compute: the earnings per share. Calculate EPS of Incorporation D for the year 2017 . Step 1 : Calculate weighted average number of common shares outstanding. Weighted average number of common shares outstanding } = ( Common shares outstanding for 2016 ) + ( Common shares outstanding for 2017 ) 2 = 115,240 shares + 240 shares 2 Weighted average number of common shares outstanding } = 57,740 shares Step 2 : Compute EPS. Earnings per share } = Net income – Preferred dividends ( Weighted average number of common shares outstanding ) = $90,537 – $0 57,740 shares Earnings per share } = $1 .57 per share Explanation: Earnings per share help to measure the profitability of a company. Earnings per share are the amount of profit that is allocated to each share of outstanding stock. Formula: Earnings per share = Net income – Preferred dividends Weighted average number of common shares outstanding f) To Compute: the price/ earnings ratio of Incorporation D for the year 2017. Compute price/ earnings ratio of Incorporation D for the year 2017. Price/Earnings = Market price per share Earnings per share = $ 200 $ 1.57 = 127.34 Explanation: Price/earnings ratio are used to determine the profitability of a company. This ratio is abbreviated as P/E. Formula: Price/earnings ratio = Market price per share of common stock Earnings per share Conclusion: Thus, price/earnings ratio for the year 2017 is 127.34. g ) To Compute: the rate of return on common stockholders’ equity of Incorporation D for the year 2017. Compute the rate of return on common stockholders’ equity of Incorporation D for the year 2017. Step 1 : Compute average common stockholders’ equity. Average common stockholders’ equity } = ( Opening balance of stockholders’ equity + Closing balance of stockholders’ equity 2 ) = $ 235 , 240 + $ 31 , 003 2 Average common stockholders’ equity } = $ 133 , 122 Step 2 : Compute rate of return on common stockholders’ equity. Rate of return on common stockholders' equity } = Net income–Preference dividends Average common stockholders' equity × 100 = $ 90 , 537 – $ 0 $ 133 , 122 × 100 = 68 % Explanation: Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average common equity that are invested in the company. Formula: Rate of return = Net income − Preferred dividends Average common stockholder’s equity Ideal rate of return on stockholder’s equity is 15% to 20%. Conclusion: Thus, return on stockholders’ equity ratio for the year 2017 is 68%.

a) Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company. To determine: The financial ratios for 2017. Compute current ratio of Incorporation D for the year 2017 . Current ratio = Current assets Current liabilities = $1,485,374 $34,100 = 43.56 Explanation: Current ratio is used to determine the relationship between current assets and current liabilities. Formula: Current ratio = Current assets Current liabilities The ideal current ratio is 2:1. Total current assets and current liabilities are determined as below: Current assets = Cash + Accounts receivable + Office supplies = $ 1 , 457 , 524 + $ 25 , 700 + $ 2 , 150 = $1,485,374 Current liabilities = { Accounts payable + Salaries payable + Interest payable } = $7,300 + $1,800 + $25,000 = $ 34 , 100 Conclusion: Thus, current ratio for the year 2017 is 43.56. b) To Compute: the cash ratio of Incorporation D for the year 2017. Compute cash ratio of Incorporation D for the year 2017 . Cash ratio = Cash + Cash equivalents Total current liabilities Cash ratio = $1,457,524 + $0 $34,100 = 42 .74 Explanation: Cash ratio is determined by dividing sum of cash and cash equivalents and total current liabilities. Conclusion: Thus, cash ratio for the year 2017 is 42.74. c) To Compute: the debt ratio of Incorporation D for the year 2017. Compute debt ratio of Incorporation D for the year 2017 . Debt ratio = Total liabilities Total assets = $1,333,238 $1,568,478 = 85% Explanation: Debt ratio is determined by dividing total liabilities and total assets. Formula: Debt ratio = Total liabilities Total assets Conclusion: Thus, debt ratio for the year 2017 is 85%. d) To Compute: the debt equity ratio of Incorporation D for the year 2017. Compute debt to equity ratio of Incorporation D for the year 2017 . Debt to equity = Total liabilities Total stockholders' equity = $ 1 , 333 , 238 $ 235 , 240 = 5 .67 times Explanation: Debt to equity ratio is determined by dividing total liabilities and total stockholders’ equity . Formula: Debt to equity = Total liabilities Total stockholders' equity Conclusion: Thus, debt to equity ratio is 5.67. e) To Compute: the earnings per share. Calculate EPS of Incorporation D for the year 2017 . Step 1 : Calculate weighted average number of common shares outstanding. Weighted average number of common shares outstanding } = ( Common shares outstanding for 2016 ) + ( Common shares outstanding for 2017 ) 2 = 115,240 shares + 240 shares 2 Weighted average number of common shares outstanding } = 57,740 shares Step 2 : Compute EPS. Earnings per share } = Net income – Preferred dividends ( Weighted average number of common shares outstanding ) = $90,537 – $0 57,740 shares Earnings per share } = $1 .57 per share Explanation: Earnings per share help to measure the profitability of a company. Earnings per share are the amount of profit that is allocated to each share of outstanding stock. Formula: Earnings per share = Net income – Preferred dividends Weighted average number of common shares outstanding f) To Compute: the price/ earnings ratio of Incorporation D for the year 2017. Compute price/ earnings ratio of Incorporation D for the year 2017. Price/Earnings = Market price per share Earnings per share = $ 200 $ 1.57 = 127.34 Explanation: Price/earnings ratio are used to determine the profitability of a company. This ratio is abbreviated as P/E. Formula: Price/earnings ratio = Market price per share of common stock Earnings per share Conclusion: Thus, price/earnings ratio for the year 2017 is 127.34. g ) To Compute: the rate of return on common stockholders’ equity of Incorporation D for the year 2017. Compute the rate of return on common stockholders’ equity of Incorporation D for the year 2017. Step 1 : Compute average common stockholders’ equity. Average common stockholders’ equity } = ( Opening balance of stockholders’ equity + Closing balance of stockholders’ equity 2 ) = $ 235 , 240 + $ 31 , 003 2 Average common stockholders’ equity } = $ 133 , 122 Step 2 : Compute rate of return on common stockholders’ equity. Rate of return on common stockholders' equity } = Net income–Preference dividends Average common stockholders' equity × 100 = $ 90 , 537 – $ 0 $ 133 , 122 × 100 = 68 % Explanation: Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average common equity that are invested in the company. Formula: Rate of return = Net income − Preferred dividends Average common stockholder’s equity Ideal rate of return on stockholder’s equity is 15% to 20%. Conclusion: Thus, return on stockholders’ equity ratio for the year 2017 is 68%.

Solution Summary: The author explains how financial ratios are used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

Horngren's Financial & Managerial Accounting

Horngren's Financial & Managerial Accounting

5th Edition

ISBN: 9780133851281

Author: Matsumura

Publisher: PEARSON

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Horngren's Financial & Managerial Accounting

Ch. 15 - What part of the Libertys annual report is written...Ch. 15 - Horizontal analysis of Liberty's balance sheet for...Ch. 15 - Vertical analysis of Liberty's balance sheet for...Ch. 15 - Which statement best describes Liberty's acid-test...Ch. 15 - Liberty's inventory turnover during 2017 was...Ch. 15 - Prob. 6QC Ch. 15 - Prob. 7QC Ch. 15 - Liberty's rate of return on common stockholders'...Ch. 15 - The company has 2,500 shares of common stock...Ch. 15 - Prob. 10AQC

Ch. 15 - What ate the three main ways to analyze financial...Ch. 15 - What is an annual report? Briefly describe the key...Ch. 15 - Prob. 3RQ Ch. 15 - What is trend analysis, and how does it differ...Ch. 15 - Prob. 5RQ Ch. 15 - Prob. 6RQ Ch. 15 - Prob. 7RQ Ch. 15 - Briefly describe the ratios that can be used to...Ch. 15 - Prob. 9RQ Ch. 15 - Briefly describe the ratios that can be used to...Ch. 15 - Briefly describe the ratios that can be used to...Ch. 15 - Prob. 12RQ Ch. 15 - Prob. 13RQ Ch. 15 - Prob. 14RQ Ch. 15 - Prob. 15RQ Ch. 15 - Prob. 15.1SE Ch. 15 - Performing horizontal analysis McDonald Corp....Ch. 15 - Calculating trend analysis Variline Corp. reported...Ch. 15 - Performing vertical analysis Hoosier Optical...Ch. 15 - Preparing common-size income statement Data for...Ch. 15 - Shine's Companies, a home improvement store chain,...Ch. 15 - Shine's Companies, a home improvement store chain,...Ch. 15 - Shine's Companies, a home improvement store chain,...Ch. 15 - Prob. 15.9SE Ch. 15 - Prob. 15.10SE Ch. 15 - Prob. 15.11SE Ch. 15 - Using ratios to reconstruct a balance sheet...Ch. 15 - Prob. 15.13SE Ch. 15 - Prob. 15.14SE Ch. 15 - Prob. 15.15E Ch. 15 - Computing trend analysis Grand Oaks Realty's net...Ch. 15 - Prob. 15.17E Ch. 15 - Prob. 15.18E Ch. 15 - Prob. 15.19E Ch. 15 - Prob. 15.20E Ch. 15 - Analyzing the ability to pay liabilities Big Bend...Ch. 15 - Analyzing profitability Varsity, Inc.s comparative...Ch. 15 - Prob. 15.23E Ch. 15 - Using ratios to reconstruct a balance sheet The...Ch. 15 - Prob. 15.25E Ch. 15 - Computing earnings per share Falconi Academy...Ch. 15 - Prob. 15.27AP Ch. 15 - Prob. 15.28AP Ch. 15 - Prob. 15.29AP Ch. 15 - Prob. 15.30AP Ch. 15 - Using ratios to evaluate a stock investment...Ch. 15 - Prob. 15.32AP Ch. 15 - Preparing an income statement The following...Ch. 15 - Computing trend analysis and return on common...Ch. 15 - Prob. 15.35BP Ch. 15 - Prob. 15.36BP Ch. 15 - Determining the effects of business transactions...Ch. 15 - Prob. 15.38BP Ch. 15 - Prob. 15.39BP Ch. 15 - Prob. 15.40BP Ch. 15 - Prob. 15.41CP Ch. 15 - Lance Berkman is the controller of Saturn, a dance...Ch. 15 - Prob. 15.1CTEI

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