4) Assume that Six MileSix Mile Electronics completed these selected transaction
ID: 2789121 • Letter: 4
Question
4)
Assume that Six MileSix Mile Electronics completed these selected transactions during June 2014:
a. Sales of $2,300,000 are subject to estimated warranty cost of 11%. The estimated warranty payable at the beginning of the year was $36,000, and warranty payments for the year totaled $57,000.
b. On June 1, Six Mile Electronics signed a $45,000 note payable that requires annual payments of $9,000 plus 55% interest on the unpaid balance each June 2.
c. Music For You, Inc., a chain of music stores, ordered $120,000 worth of CD players. With its order, Music For You, Inc., sent a check for $120,000 in advance, and Six Mile shipped $85,000 of the goods. Six Miles will ship the remainder of the goods on July 3, 2014.
d. The June payroll of $300,000 is subject to employee withheld income tax of $30 comma 50030,500 and FICA tax of 7.65%. On June 30, Six Mile pays employees their take-home pay and accrues all tax amounts.
Requirement 1. Report these items on Six Mile Electronics' balance sheet at June 30, 2014. Select the statement account and label. Calculate each accounts' balance and the total current liability amount at June 30, 2014.
(Round all amounts to the nearest whole dollar. Leave any unused cells blank.)
Six Mile Electronics
Balance Sheet (partial)
June 30, 2014
Current liabilities:
Long-term liabilities:
5)
5)
Companies that operate in different industries may have very different financial ratio values. These differences may grow even wider when we compare companies located in different countries.
(Amounts in millions or billions)
Company E
Company K
Company W
Income data
Total revenues
$ 9,731
¥ 7,321
€136,596
Operating income
297
232
5,696
Interest expense
41
29
655
Net income
26
11
448
Asset and liability data
(Amounts in millions or billions)
Total current assets
432
5,562
160,446
Long-term assets
118
317
48,210
Total current liabilities
207
2,207
72,600
Long-term liabilities
117
2,320
111,017
Stockholders' equity
226
1,352
25,039
Requirement
1.
Compare three leading companies on their current ratio, debt ratio, leverage ratio, and times-interest-earned ratio. Compute the ratios for Company
Upper E, Company Upper K, and Company Upper W.
Based on your computed ratio values, which company looks the least risky?
Begin by computing the ratios. Start by selecting the formula for the current ratio. Then calculate the current ratios for Company Upper E, Upper K, and Upper W.
(Round the amount to two decimal places.)
/
=
Current ratio
(Amounts in millions or billions)
Company E
Company K
Company W
Income data
Total revenues
$ 9,731
¥ 7,321
€136,596
Operating income
297
232
5,696
Interest expense
41
29
655
Net income
26
11
448
Asset and liability data
(Amounts in millions or billions)
Total current assets
432
5,562
160,446
Long-term assets
118
317
48,210
Total current liabilities
207
2,207
72,600
Long-term liabilities
117
2,320
111,017
Stockholders' equity
226
1,352
25,039
Explanation / Answer
4.35
A ratio of less than one indicates that a business may not be in a position to pay its interest obligations, and so is more likely to default on its debt. A much higher ratio is a strong indicator that the ability to service debt is not a problem for a borrower.
The Debt Equity ratio of company W is more than 1 and very high than other company so company w is more risky and company E is less risky.
(Amounts in millions or billions) Company E Company K Company W Current Ratio Current Asset/ Current Liabilities Current Ratio 2.09 2.52 2.21 The current ratio can provide investors and analysts with clues about the efficiency of a company’s operating cycle, or its ability to monetize its products. The higher the ratio, the more able a company is to pay off its obligations. While acceptable ratios vary depending on the specific industry, a ratio between 1.5 and 3 is generally considered healthy. Investors and analysts would consider MSFT, with a current ratio of 2.05, financially healthy and capable of paying off its obligations. Debt Ratio Debt/ Equity Debt Ratio 0.52 1.72 4.43 A high debt/equity ratio generally indicates that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense, and if it is very high, it may increase the chances of a default or bankruptcy. Typically a debt to equity ratio greater than 2.0 indicates a risky scenario for the investor, however this yardstick can vary by industry. Businesses that require large capital expenditures (CapEx) may need to secure more loans than other companies. It's a good idea to measure a firm's leverage ratios against past performance and its competitors' performance to better understand the data. Leverage Ratio Avg. Total Assets/ Avg. Total Equity Leverage Ratio 2.434.35
8.33 This ratio indicates that the higher the degree of financial leverage, the more volatile earnings will be. Since interest is usually a fixed expense, leverage magnifies returns and EPS. This is good when operating income is rising, but it can be a problem when operating income is under pressure. Times Interest Earned Earnings before Interest and Tax / Interest Expenses Times Interest Earned 1.63 1.38 1.68A ratio of less than one indicates that a business may not be in a position to pay its interest obligations, and so is more likely to default on its debt. A much higher ratio is a strong indicator that the ability to service debt is not a problem for a borrower.
The Debt Equity ratio of company W is more than 1 and very high than other company so company w is more risky and company E is less risky.
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