ACCOUNTING
Solution to P13-5A-7th Edition(1)

Solution to P13-5A-7th Edition(1) - Problem 13-5A(60...

Info icon This preview shows pages 1–2. Sign up to view the full content.

Problem 13-5A (60 minutes) Part 1 Barco Company Kyan Company a. Current ratio = 2.5 to 1 = 2.6 to 1 * $19,500 + $37,400 + $9,100 + $84,440 + $5,000 = $155,440 **$34,000 + $57,400 + $7,200 + $132,500 + $6,950 = $238,050 b. Acid-test ratio = 1.1 to 1 = 1.1 to 1 * $19,500 + $37,400 +$9,100 = $66,000 **$34,000 + $57,400 + $ 7,200 = $98,600 c. Accounts receivable turnover = 20.2 times = 14.8 times d. Inventory turnover = 8.4 times = 5.3 times e. Days’ sales in inventory x 365 = 52.7 days x 365 = 76.5 days f. Days' sales uncollected x 365 = 22.0 days x 365 = 26.8 days Short-term credit risk analysis: Barco and Kyan have essentially equal current ratios and equal acid-test ratios. However, Barco both turns its merchandise and collects its accounts receivable more rapidly than does Kyan. On this basis, Barco probably is the better short-term credit risk. $770,000 ($37,400 + $9,100 + $29,800)/2 $585,100 ($84,440 + $55,600)/2 $84,440 $585,100 $37,400 + $9,100 $770,000 $880,200 ($57,400 + $7,200 + $54,200)/2 $155,440* $61,340 $66,000* $61,340
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: $238,050** $93,300 $98,600** $93,300 $632,500 ($132,500 + $107,400)/2 $132,500 $632,500 $57,400 + $7,200 $880,200 Problem 13-5A (Concluded) Part 2 Barco Company Kyan Company a. Profit margin ratio = 21.1% = 23.9% b. Total asset turnover = 1.8 times = 1.9 times c. Return on total assets = 38.5% = 45.5% d. Return on common stockholders' equity = 55.8% = 65.0% e. Price-earnings ratio = 16.6 = 14.7 f. Dividend yield = 5.1% = 5.1% Investment analysis: Kyan's profit margin ratio, total asset turnover, return on total assets, and return on common stockholders' equity are all higher than Barco’s. Although the companies pay the same dividend, Kyan's price-earnings ratio is lower. All of these factors suggest that Kyan's stock is likely the better investment. $162,200 $770,000 $770,000 ($445,440 + $398,000)/2 $162,200 ($445,440 + $398,000)/2 $162,200 ($303,300 + $278,300)/2 $75 $4.51 $3.80 $75 $210,400 $880,200 $880,200 ($542,450 + $382,500)/2 $210,400 ($542,450 + $382,500)/2 $210,400 ($348,150 + $299,600)/2 $75 $5.11 $3.80 $75...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern