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

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

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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

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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...
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