EXERCISE 13-17 (15–20 minutes)
Current Assets $210,000
(a) Current Ratio = = = 2.63
Current Liabilities $80,000
Current ratio measures the short-term ability of the company to meet
its currently maturing obligations. (b) Cash + Short-term Investments + Net Receivables $115,000 = 1.44
Acid-test ratio = =
Current Liabilities $80,000 Acid-test ratio also measures the short-term ability of the company to
meet its currently maturing obligations. However, it eliminates assets that might be slow moving, such as inventories and prepaid expenses.
Total Liabilities $220,000
(c) Debt to assets = = = 51.16%
Total Assets $430,000
This ratio provides the creditors with some idea of the corporation’s
ability to withstand losses without impairing the interests of creditors. (d)
Return on assets =
Net Income
Average Total Assets
=
$25,000 $430,000
= 5.81%
This ratio measures the return the company is earning on its average total assets and provides one indication related to the profitability of the enterprise.
EXERCISE 13-18 (20–25 minutes)
$773,000
(a) (1) Current ratio = = 3.22 times
$240,000
$52,000 + $198,000 + $80,000
(2) Acid-test ratio = = 1.38 times $240,000
Copyright ? 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 13-29
EXERCISE 13-18 (Continued) (3) Accounts receivable turnover =
$80,000 + $198,000
$1,640,000 ÷ = 11.8 times (or approximately
2
every 31 days)
(4) Inventory turnover =
$360,000 + $440,000
$800,000 ÷ = 2 times (or approximately
2
every 183 days)
(5) Return on assets =
$1,400,000 + $1,630,000
$360,000 ÷ = 23.76%
2
(6) Profit margin on sales = $360,000 ÷ $1,640,000 = 21.95%
(b) Financial ratios should be evaluated in terms of industry peculiarities
and prevailing business conditions. Although industry and general business conditions are unknown in this case, the company appears to have a relatively strong current position. The main concern from a short-term perspective is the apparently low inventory turnover. The rate of return on assets and profit margin on sales are extremely good and indicate that the company is employing its assets advantageously.
EXERCISE 13-19 (15–25 minutes)
(a) (1) $318,000 ÷ $87,000 = 3.66 times $200,000 + $170,000
(2) $820,000 ÷ = 4.43 times = 82 days 2 (3) $1,400,000 ÷ $95,000 = 14.74 times = 25 days
13-30
Copyright ? 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
EXERCISE 13-19 (Continued) (b)
(4) (5) (6) (1) (2) (3) (4) (5) (6)
$410,000 ÷ 52,000 = $7.88 $410,000 ÷ $1,400,000 = 29.3% $410,000 ÷ $488,000 = 84.02%
No effect on current ratio, if already included in the allowance for doubtful accounts.
Weaken current ratio by reducing current assets.
Improve current ratio by reducing current assets and current liabilities by a like amount. No effect on current ratio.
Weaken current ratio by increasing current liabilities. No effect on current ratio.
Copyright ? 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 13-31
Problem 13-1 (Time 25–30 minutes)
Purpose—to present the student with an opportunity to prepare journal entries for a variety of situations related to liabilities. The situations presented are basic ones including purchases and payments on account, and borrowing funds by giving a zero-interest-bearing note. The student is also required to prepare year-end adjusting entries.
Problem 13-2 (Time 25–35 minutes)
Purpose—to present the student with the opportunity to prepare journal entries for several different situations related to liabilities. The situations presented include accruals and payments related to sales, use, and asset retirement obligations. Year-end adjusting entries are also required.
Problem 13-3 (Time 20–30 minutes)
Purpose—to present the student with an opportunity to prepare journal entries for four weekly payrolls. The student must compute income tax to be withheld, FICA tax, and state and federal unemployment compensation taxes. The student must realize the fact that in the fourth week only a portion of one employee’s payroll is subject to unemployment tax.
Problem 13-4 (Time 20–25 minutes)
Purpose—to provide the student with the opportunity to prepare journal entries for a monthly payroll. The student must compute income tax to be withheld, FICA tax, and state and federal unemployment compensation taxes. The student must be aware that the unemployment taxes do not apply to three employees as their earnings exceed the statutory maximum subject to the taxes.
Problem 13-5 (Time 15–20 minutes)
Purpose—to provide the student with an opportunity to prepare journal entries and balance sheet presentations for warranty costs under the cash-basis and the expense warranty accrual methods. Entries in the sales year and one subsequent year are required. The problem highlights the differences between the two methods in the accounts and on the balance sheet.
Problem 13-6 (Time 10–20 minutes)
Purpose—to provide the student with a basic problem covering the sales-warranty method. The student is required to prepare journal entries in the year of sale and in subsequent years when warranty costs are incurred. Also required are balance sheet presentations for the year of sale and one subsequent year. While the problem is basic in nature it does test the student’s ability to understand and apply the sales warranty method.
Problem 13-7 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to prepare journal entries for warranty costs under the expense warranty method and the cash-basis method. The student is also required to indicate the proper balance sheet disclosures under each method for the year of sale. Finally, the student is required to comment on the effect on net income of applying each method. The problem highlights the differences between the two methods in the accounts and on the balance sheet.
Problem 13-8 (Time 15–25 minutes)
Purpose—to provide the student with a basic problem in accounting for premium offers. The student is required to prepare journal entries relating to sales, the purchase of the premium inventory, and the redemption of coupons. The student must also prepare the year-end adjusting entry reflecting the esti-mated liability for premium claims outstanding. A very basic problem.
TIME AND PURPOSE OF PROBLEMS
13-32
Copyright ? 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
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