Engineering Economic Analysis

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Problems

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551

ROBLEMS

.1 Why is it important for engineers and managers to
understand accounting principles? Name a few ways
that they can do so.
2 Explain the accounting function within a firm. What
does this function do, and why is it important? What
types of data does it provide?
3 Develop short definitions for the following terms:
balance sheet, income statement, and fundamental
accounting equation.
4 Explain the difference between short-term and long-
term liabilities.
:; List the two primary general accounting statements.
What is each used for and how do they differ? Which
;ost important?
) What is the advantage of comparing financial state-
ments across periods or against industry benchmarks
rather than in looking at statements associated with a
single date or period?
If a firm has a current ratio less than 2.0 and an
acid-test ratio less than 1.0, will the company even-
tually go bankrupt and out of business? Explain your
answer.
Calculatethe equityof the GravelConstructionCom-
pany if it has $1 million worth of assets? Gravel has
$127,000 in current liabilities and $210,000 in long-
term liabilities.
Scarmack's Paint Company has annual sales of
$500,000 per year. If there is a profit of $1000 per
day, 6 days per week operation, what is the total yearly
b'- .,ess expense? All calculations are on a before-tax
b!1.~..s. (Answer: $188,000)
oMama L's Baby Monitor Company has current as-
sets of $5 million and current liabilities of $2 million.
Give the company's working capital and current ratio.
(Answer:$3 million, 2.50)
1 Laila's Surveying Inc. had revenues of $100,000 in

2004. Expenses totaled $60,000. What was her net
      profit (or loss)?
      ~ From the following data, taken from the balance sheet
      of Petey's Widget Factory, determine the working
      capital, current ratio, and acid-test ratio.

Cash

Net accounts and notes receivable

Retailers' inventories

Prepaid expenses

Accounts and notes payable

(short term)

Accumulated liabilities

$ 90,000

175,000

210,000

6,000

322,000

87,000

18-13 The general ledger of the Fly-Buy-Nite (FBN)

Engineering Company contained the following

account balances (partial listing) at the end of June,

2004. Construct an income statement. What is the net
      income before taxes and the net profit (or loss) after
      taxes? FBN has a tax rate of 27%.

Administrative expenses

Subcontracted services

Development expenses

Interest expense

Sales revenue

Selling expenses

Amount

(thousands)

$ 2,750

18,000

900

200

30,000

4,500

18-14 For Gee-Whiz Devices calculate the following: work-

ing capital, current ratio, and acid-test ratio.

Gee-Whiz Devices Balance Sheet Data

Cash

Market securities

Net accounts and notes receivable

Retailers' inventories

Prepaid expenses

Accounts and notes payable

(short term)

Accumulated liabilities to date

$100,000

45,000

150,000

200,000

8,000

315,000

90,000

(Answer:$90,000; 1.22; 0.73)

18-15 For Evergreen Environmental Engineering (EEE),

determine the working capital, current ratio, and acid-

test ratio. Evaluate the company's economic situation

with respect to its ability to payoff debt.