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 $ 63,014 $ 79,447 Accounts payable $ 187,422 $ 195,111 Accounts receivable 64,781 85,139 Notes payable 82,520 134,088 Inventory 117,852 182,862 Total $ 269,942 $ 329,199 Total $ 245,647 $ 347,448 Long-term debt $ 232,000 $ 168,750 Owners’ equity Common stock and paid-in surplus $ 223,000 $ 223,000 Accumulated retained earnings 179,352 216,427 Fixed assets Net plant and equipment $ 658,647 $ 589,928 Total $ 402,352 $ 439,427 Total assets $ 904,294 $ 937,376 Total liabilities and owners’ equity $ 904,294 $ 937,376 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

Answer a.

2018:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $269,942 / $245,647
Current Ratio = 1.10

2019:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $329,199 / $347,448
Current Ratio = 0.95

Answer b.

2018:

Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Quick Ratio = ($269,942 - $117,852) / $245,647
Quick Ratio = 0.62

2019:

Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Quick Ratio = ($329,199 - $182,862) / $347,448
Quick Ratio = 0.42

Answer c.

2018:

Cash Ratio = Cash / Current Liabilities
Cash Ratio = $63,014 / $245,647
Cash Ratio = 0.26

2019:

Cash Ratio = Cash / Current Liabilities
Cash Ratio = $79,447 / $347,448
Cash Ratio = 0.23

Answer d.

2018:

Debt Equity Ratio = Total Debt / Total Equity
Debt Equity Ratio = ($245,647 + $232,000) / $402,352
Debt Equity Ratio = 1.19

Equity Multiplier = 1 + Debt Equity Ratio
Equity Multiplier = 1 + 1.19
Equity Multiplier = 2.19

2019:

Debt Equity Ratio = Total Debt / Total Equity
Debt Equity Ratio = ($347,448 + $168,750) / $439,427
Debt Equity Ratio = 1.17

Equity Multiplier = 1 + Debt Equity Ratio
Equity Multiplier = 1 + 1.17
Equity Multiplier = 2.17

Answer e.

2018:

Total Debt Ratio = Total Debt / Total Assets
Total Debt Ratio = ($245,647 + $232,000) / $904,294
Total Debt Ratio = 0.53

2019:

Total Debt Ratio = Total Debt / Total Assets
Total Debt Ratio = ($347,448 + $168,750) / $937,376
Total Debt Ratio = 0.55