ACCOUNTING TASK 4

To submitted the task of Financial and Managerial Accounting

By :
Iman Wiharjo 29119203
Indra Raja Dijaya 29119164
Mega Zhafarina Purwono 29119227
Muhammad Arief Muttaqin 29119172
Rosma Sitohang 29119198

MASTER BUSINESS OF ADMINISTRATION

INSTITUT TEKNOLOGI BANDUNG
2019-2020
CHAPTER 14

A. EXCERSICE 14.4 (Measures of Liquidity)

Roy’s Toys is a manufacturer of toys and children’s products. The following are selected
items appearing in a recent balance sheet (dollar amounts are in millions).

Cash and short-term investments ……………………………….. $ 47.3

Receivables …....……………………………………………….. 159.7
Inventories ……………………………………………………… 72.3
Prepaid expenses and other current assets ……………………… 32.0
Total current liabilities …………………………………………. 130.1
Total liabilities …………………………………………………. 279.4
Total stockholders’ equity ……………………………………… 344.0

a. Using the information given, compute the amounts of Roy’s Toys (1) quick assets and (2)
total current assets.
Answer:
(1) Quick assets = $ 47.3 + $ 159.7 = $ 207
(2) Total current assets = $ 47.3 + $ 159.7 + $ 72.3 + $ 32.0 = $ 311.3
b. Compute for Roy’s Toys the (1) quick ratio, (2) current ratio, and (3) dollar amount of
working capital. (Round rations to one decimal place)
Answer:
𝑞𝑢𝑖𝑐𝑘 𝑎𝑠𝑠𝑒𝑡𝑠 $ 207
(1) 𝑄𝑢𝑖𝑐𝑘 𝑟𝑎𝑡𝑖𝑜 = = = 1.6 : 1
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 $ 130.1
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 $ 311.3
(2) 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 = = $ 130.1 = 2.4 : 1
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

(3) 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = $ 311.3 − $ 130.1

= $ 181.2
c. Discuss whether Roy’s Toys appears liquid from the viewpoint of a short-term creditor.
Answer:
Roys Toys is liquid from that ratio. It mean the company can pay the short- term debt.
Because the company is on the safe level of the liabilities to their assets.
B. PROBLEM 14.6A (Financial Statement Analysis)

Shown as follows is selected information from the financial statements of Dickson, Inc., a retail
furniture store.

From the balance sheet:

Cash ……………………………….……………………. $ 30,000
Account receivable ..……………………………….…… 150,000
Inventory …………………….…………………………. 200,000
Plant assets (net of accumulated depreciation) …………. 500,000
Current liabilities ……………………………………….. 150,000
Total stockholders’ equity ……………………………… 300,000
Total assets ……………………………………………... 1,000,000
From the income statement:
Net Sales ………………………………………………... $ 1,500,000
Cost of goods sold ………………………………………. 1,080,000
Operating expenses …………………………………….. 315,000
Interest expense ………………………………………… 84,000
Income tax expense …………………………………….. 6,000
Net Income ……………………………………………... 15,000
From the statement of cash flows:
Net cash provided by operating activities
(including interest paid of $79,000) …………………. $ 40,000
Net cash used in investing activities ……………………. (46,000)
Financing activities:
Amounts borrowed ………………………………….. $ 50,000
Repayment of amounts borrowed …………………… (14,000)
Dividends paid ………………………………………. (20,000)
Net cash provided by financing activities ……….. 16,000
Net increase in cash during the year …………………….. $ 10,000
Instruction
a. Explain how the interest expense shown in the income statement could be $84,000, when
the interest payment appearing in the statement of cash flows is only $79,000.
Answer:
In interest expense $ 84,000 use an accrual basis but in interest payable $ 79,000 use cash
basis. This is why they have a diferent number.

b. Compute the following (round to one decimal place):

1. Current ratio
Answer:
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒂𝒔𝒔𝒆𝒕𝒔 $ 𝟑𝟖𝟎, 𝟎𝟎𝟎
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒓𝒂𝒕𝒊𝒐 = =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 $ 𝟏𝟓𝟎, 𝟎𝟎𝟎
= 2,53 : 1

2. Quick ratio
Answer:
𝑸𝒖𝒊𝒄𝒌 𝒂𝒔𝒔𝒆𝒕𝒔 $ 𝟏𝟖𝟎, 𝟎𝟎𝟎
𝑸𝒖𝒊𝒄𝒌 𝒓𝒂𝒕𝒊𝒐 = =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 $ 𝟏𝟓𝟎, 𝟎𝟎𝟎

= 1,2 :1

3. Working capital
Answer:
𝑾𝒐𝒓𝒌𝒊𝒏𝒈 𝒄𝒂𝒑𝒊𝒕𝒂𝒍 = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒂𝒔𝒔𝒆𝒕𝒔 − 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
= $ 380,000 - $ 150,000
= $ 230,000
4. Debt ratio
Answer:
𝑻𝒐𝒕𝒂𝒍 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 $ 𝟕𝟎𝟎, 𝟎𝟎𝟎
𝑫𝒆𝒃𝒕 𝒓𝒂𝒕𝒊𝒐 = =
𝑻𝒐𝒕𝒂𝒍 𝒂𝒔𝒔𝒆𝒕𝒔 $ 𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎
= 0.7 = 70%
c. Comment on these measurements and evaluate Dickson, Inc.’s short-term debt-paying
ability.
Answer:
Dickson, have a good short term debt paying ability, they can make a new deal to get a new
debt. If I a lender, I will give.

d. Compute the following ratios (assume that the year-end amounts of total assets and total
stockholders’equity also represent the average amounts throughout the year):
1. Return on assets
Answer:
𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑰𝒏𝒄𝒐𝒎𝒆 $ 𝟏𝟎𝟓, 𝟎𝟎𝟎
𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝒂𝒔𝒔𝒆𝒕𝒔 (𝑹𝑶𝑨) = =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔 $ 𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎
= 0,105 = 10,5 %

2. Return on equity
Answer:
𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆 $ 𝟏𝟓, 𝟎𝟎𝟎
𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝒆𝒒𝒖𝒊𝒕𝒚 (𝑹𝑶𝑬) = =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑻𝒐𝒕𝒂𝒍 𝑬𝒒𝒖𝒊𝒕𝒚 $ 𝟑𝟎𝟎, 𝟎𝟎𝟎
= 0,05 = 5%
e. Comment on the company’s performance under these measurements. Explain why the
return on assets and return on equity are so different.
Answer:
These two measurements use a different point of view. ROA is measure how much the
asset can make an income. But in ROE to measure the stockholder money to make money.
The higher level of ROA mean the asset can produce more income, and how effective it is.
The ROE show the stock holder money can produce the net income.

f. Discuss ( 1 ) the apparent safety of long-term creditors’ claims and ( 2 ) the prospects for
Dickson, Inc., continuing its dividend payments at the present level.
Answer:
(1) We can see from the debt ratio that they have 70% so they have a safety of long-term
creditors.
(2) The investor should feel safe because the company can produce net income. The debt
ratio is very good and it means they can keep paying the dividend from this level.