Question

Bethesda Mining Company reports the following balance sheet information for 2018 and 2019.

BETHESDA MINING COMPANY Balance Sheets as of December 31, 2018 and 2019 2018 2019 2018 2019 Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 55,526 $ 70,205 Accounts payable $ 188,922 $ 196,611 Accounts receivable 63,281 83,639 Notes payable 84,020 135,588 Inventory 121,382 186,805 Total $ 272,942 $ 332,199 Total $ 240,189 $ 340,649 Long-term debt $ 235,000 $ 171,750 Owners’ equity Common stock and paid-in surplus $ 220,000 $ 220,000 Accumulated retained earnings 170,594 206,478 Fixed assets Net plant and equipment $ 658,347 $ 589,778 Total $ 390,594 $ 426,478 Total assets $ 898,536 $ 930,427 Total liabilities and owners’ equity $ 898,536 $ 930,427 Calculate the following financial ratios for each year:

a. Current ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. Quick ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Cash ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) d. Debt-equity ratio and equity multiplier. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) e. Total debt ratio. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. 2018 current ratio times 2019 current ratio times b. 2018 Quick ratio times 2019 Quick ratio times c. 2018 Cash ratio times 2019 Cash ratio times d. 2018 Debt-equity ratio times 2018 Equity multiplier times 2019 Debt-equity ratio times 2019 Equity multiplier times e 2018 Total debt ratio times 2019 Total debt ratio times

Answer 1

Answer to Part a.
Current Ratio = Current Assets / Current Liabilities

Year 2018:
Current Ratio = $240,189 / $272,942
Current Ratio = 0.88

Year 2019:
Current Ratio = $340,649 / $332,199
Current Ratio = 1.03

Answer to Part b.
Quick Ratio = (Current Assets – Inventory) / Current Liabilities

Year 2018:
Quick Ratio = ($240,189 - $121,382)/ $272,942
Quick Ratio = $118,807 / $272,942
Quick Ratio = 0.44

Year 2019:
Quick Ratio = ($340,649 - $186,805)/ $332,199
Quick Ratio = $153,844 / $332,199
Quick Ratio = 0.46

Answer to Part c.
Cash Ratio = Cash / Current Liabilities

Year 2018:
Cash Ratio = $55,526 / $272,942
Cash Ratio = 0.20

Year 2019:
Cash Ratio = $70,205 / $332,199
Cash Ratio = 0.21

Answer to Part d.
Debt Equity Ratio = Total Debt / Total Equity

Year 2018:
Total Debt = $272,942 + $235,000
Total Debt = $507,942

Debt Equity Ratio = $507,942 / $390,594
Debt Equity Ratio = 1.30 times

Equity Multiplier = 1 + Debt Equity Ratio
Equity Multiplier = 1 + 1.30
Equity Multiplier = 2.30 times

Year 2019:
Total Debt = $332,199 + $171,750
Total Debt = $503,949

Debt Equity Ratio = $503,949 / $426,478
Debt Equity Ratio = 1.18 times

Equity Multiplier = 1 + Debt Equity Ratio
Equity Multiplier = 1 + 1.18
Equity Multiplier = 2.18 times

Answer to Part e.
Total Debt Ratio = Total Debt / Total Assets

Year 2018:
Total Debt Ratio = $507,942 / $898,536
Total Debt Ratio = 0.57 times

Year 2019:
Total Debt Ratio = $503,949/ $930,427
Total Debt Ratio = 0.54 times