Question

In: Accounting

1) Suppose your Assets are $400 and your Liabilities are $600. How much is your Net...

1) Suppose your Assets are $400 and your Liabilities are $600. How much is your Net Worth?

2) Now suppose you add $500 in Assets. What would be a "real life" way you could do this. How much would your Net Worth now be?

3) What would your Debt-to-Equity ratio be, based on #2?

4) Now suppose you take home $24,000 in a year, and you have a $400 car payment and $400 in credit card payments. How much are your monthly credit payments? Use a ratio to calculate whether you are in good financial shape.

Expert Solution

1)

Value of assets = $400

Value of liabilities = $600

Networth = Value of assets - Value of liabilities = $400 - $600 = -$200

2)

"Real life" way to increase assets to earn net income in the company that will increase the overall value of assets. Increase in net profit leads to increase in net assets.

New Value of assets = $400 + $500 = $900

Value of liabilities = $600

Networth = Value of assets - Value of liabilities = $900 - $600 = $300

3)

Debt to Equity ratio = Debt / Equity

Value of debt = 600

Value of Equity = Value of networth = 300

Debt to Equity ratio = 600/300 = 2

4)

Net income for the year = 24000

Car Payment in a year = 400

Credit card payment = 400

Total Payment in a year = 400 + 400 = 800

Total monthly payment = 800/12 = 66.67

Total monthly net income = 24000/12 = 2000

Excess income over expenses = 2000 - 66.67 = 1933.33

Expense ratio = 66.67/2000 *100 = 3.33%

Expense is only 3.33% of net income per month. So, we are in a good financial shape.

ekkarill92 answered 2 years ago

Why are operating assets and liabilities important? How do we calculate net operating assets?

1st year Assets 115,028 Liabilities 59,924 2nd year Assets 132,081 Liabilities 42,128 Owner Investment ? Net...

1st year Assets 115,028 Liabilities 59,924 2nd year Assets 132,081 Liabilities 42,128 Owner Investment ? Net Income 15,536 Owner Cash Withdrawl 4690 What is the owner's investment for year 2nd? Please show complete calculation.

Determining how Assets, Liabilities, Shareholders Equity, Revenue, Expense, and Net Income are understated, overstated, or not...

Determining how Assets, Liabilities, Shareholders Equity, Revenue, Expense, and Net Income are understated, overstated, or not affected by a company's action. Example: 1. A company did not record a sale made on account for services that have been provided. 2. The amount of cash a customer paid for a sale previously made on credit was understated. 3. The value of inventory purchased on account was understated. 4. Our company recently purchased inventory. The purchase of the inventory was recorded correctly;...

On March 31, Hopi Hospital had assets of $500,000, liabilities of $300,000, and net assets of...

On March 31, Hopi Hospital had assets of $500,000, liabilities of $300,000, and net assets of $200,000. During April, the following transactions were completed: 1. Services rendered to patients, $100,000 2. Collections on patients’ accounts, $85,000 3. Supplies purchased on account, $20,000 4. Payments on accounts payable to suppliers, $16,000 6. Supplies consumed in patient care services, $18,000 7. Other expenses paid in cash, $54,000 8. Purchased equipment for cash, $12,000 Required: What were the amounts of Hopi Hospital’s (1)...

Discuss the evolution of the U.S current account deficit and net foreign assets: how much of...

Discuss the evolution of the U.S current account deficit and net foreign assets: how much of the evolution of the deficit (as a share of GDP) is due to changes in private savings, public savings (fiscal deficits) and investment rate (all as a share of GDP) and how much has the role of different factors changed over time? - Based on this analysis, are the U.S. current account and external debt sustainable? Does the U.S. differ or not from emerging...

a) Suppose $600 is invested at 5% interest, compounded quarterly for 2.5 years. How much money...

a) Suppose $600 is invested at 5% interest, compounded quarterly for 2.5 years. How much money is in the account after 2.5 years? b) How much shoukd you pay each year for 15 years into an ordinary annuity that pays 3.15% interest compunsed annually so that at the end, you have $43,000 in the account? c) A building manager sets up a sinking fund so that there is enough money when the HVAC system needs to be replaced in 6...

Table 1 Assets Liabilities Reserves $400 Demand deposits $1000 Gov. securities $300 Other liabilit

Table 1 Assets Liabilities Reserves $400 Demand deposits $1000 Gov. securities $300 Other liabilities $200 Loans $500 Owners equity $300 Other $300 Total assets $1500 Total liabilities $1500 Part IV. A hypothetical balance is shown for a commercial bank in Table I. Assume the reserve requirement is initially 20 percent. Use t-accounts to show how this balance sheet would appear after the following transactions? With each t-account calculate the amount of excess reserves after the...

it is easier to accept companies as corporations: focused on net assets and liabilities, matrices of...

it is easier to accept companies as corporations: focused on net assets and liabilities, matrices of price/earnings and viewed as monolithic entities/faceless bureaucracies. The challenge presented here is how to view them as communities made up of individuals, and therefore attempt to change to the organizational culture. Provide detail ways in which engineers may change the corporate climate of a company; ways in which the organizational culture may shift from a price/earning perspective to a transformational community, which includes personal...

Suppose you have $400 to invest today at 7%, how much will you have saved in...

Suppose you have $400 to invest today at 7%, how much will you have saved in 20 years? You have an opportunity to invest in a UK Consol Bond that will pay you $40 quarterly forever, if the opportunity cost of your funds is 12%, what is fair market price for you to pay? In general the easiest form of organization to raise large amounts of capital quickly is Which of the following is NOT an example of an agency...

Banque Langenberg holds $400 million of interest-sensitive assets and $325 million of interest-sensitive liabilities. Total assets...

Banque Langenberg holds $400 million of interest-sensitive assets and $325 million of interest-sensitive liabilities. Total assets are $500 million. Interest-sensitive assets (millions) $ 400 Interest-sensitive liabilities (millions) $ 325 Total assets $ 500 $ interest sensitive gap $75 Relative interest sensitive gap 15% Interest sensitive ratio 1.23 What is the initial $ interest-sensitive gap? What is the initial relative interest-sensitive gap? Now change the assumptions. Boosting interest-sensitive assets to $600 million and interest-sensitive liabilities to $400 million. Total assets are...