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	$	31,982		$	41,399		Accounts payable	$	193,422		$	201,111
Accounts receivable		58,781			79,139		Notes payable		88,520			140,088
Inventory		131,971			198,632
							Total	$	281,942		$	341,199
Total	$	222,734		$	319,170
							Long-term debt	$	244,000		$	180,750
							Owners’ equity
							Common stock and paid-in surplus	$	211,000		$	211,000
							Accumulated retained earnings		143,239			175,549
Fixed assets
Net plant and equipment	$	657,447		$	589,328		Total	$	354,239		$	386,549
Total assets	$	880,181		$	908,498		Total liabilities and owners’ equity	$	880,181		$	908,498

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.)

Answer 1

a. Current ratio is computed by using the below formula

current assets / current liabilities

2019

= $ 319,170 / $ 341,199

= 0.94 Approximately

2018

= $ 222,734 / $ 281,942

= 0.79 Approximately

b. Quick ratio is computed by using the below formula:

= ( Current assets - inventory ) / current liabilities

2019

= ( $ 319,170 - $ 198,632 ) / $ 341,199

= 0.35 Approximately

2018

= ( $ 222,734 - $ 131,971 ) / $ 281,942

= 0.32 Approximately

c. Cash ratio is computed by using the below formula:

Cash and cash equivalents / current liabilities

2019

= $ 41,399 / $ 341,199

= 0.12 Approximately

2018

= $ 31,982 / $ 281,942

= 0.11 Approximately

d. Deb-equity ratio is computed by using the below formula:

= Total liabilities / Shareholder's Equity

2019

= ( $ 341,199 + $ 180,750 ) / $ 386,549

= 1.35 Approximately

2018

= ( $ 281,942 + $ 244,000 ) / $ 354,239

= 1.48 Approximately

Equity multiplier is computed by using the below formula:

Total Assets / Total Shareholder's Equity

2019

= $ 908,498 / $ 386,549

= 2.35 Approximately

2018

= $ 880,181 / $ 354,239

= 2.48 Approximately

e. Total debt ratio is computed by using the below formula:

Total liabilities / Total assets

2019

= ( $ 341,199 + $ 180,750 ) / $ 908,498

= 0.57 Approximately

2018

= ( $ 281,942 + $ 244,000 ) / $ 880,181

= 0.60 Approximately

Feel free to ask in case of any query relating to this question