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Questions 39 of the Self-Study Questions are based on the following data:

HYDRO COMPANY

Balance Sheet

December 31, 2018

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,000 Current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . $ 80,000

Accounts receivable (net). . . . . . . . . . . . 80,000 10% bonds payable . . . . . . . . . . . . . . . . . . . . . . 120,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . 130,000 Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000

Plant and equipment (net) . . . . . . . . . . . 250,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 100,000

Total assets . . . . . . . . . . . . . . . . . . . . . . $500,000 Total liabilities and stockholders equity . . . . . . . $500,000

Sales revenues for 2018 were $800,000, gross profit was $320,000, and net income was $36,000. The income

tax rate was 40 percent. One year ago, accounts receivable (net) were $76,000, inventory was $110,000, total

assets were $460,000, and stockholders equity was $260,000. The bonds payable were outstanding all year and

the 2018 interest expense was $12,000.

3. The current ratio of Hydro Company at December 31, 2018, calculated using the above data, was

3.13 and the companys working capital was $170,000. Which of the following would happen if the

firm paid off $20,000 of its current liabilities on January 1, 2019?

a. Both the current ratio and working capital would decrease.

b. Both the current ratio and working capital would increase.

c. The current ratio would increase, but working capital would remain the same.

d. The current ratio would increase, but working capital would decrease.

4. What was the firms inventory turnover for 2018?

a. 6.67 c. 6

b. 4 d. 3.69

5. What was the firms return on common stockholders equity for 2018?

a. 25.7 percent c. 17.1 percent

b. 12.9 percent d. 21.4 percent

6. What was the firms average collection period for 2018?

a. 36.5 days c. 35.6 days

b. 37.4 days d. 18.3 days

7. What was the firms times-interest-earned ratio for 2018?

a. 4 c. 5

b. 3 d. 6

8. What was the firms return on sales for 2018?

a. 4.0 percent c. 5.0 percent

b. 4.5 percent d. 5.5 percent

9. What was the firms return on assets for 2018?

a. 6.0 percent c. 7.5 percent

b. 7.0 percent d. 8.0 percent

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