Question

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	$	42,646		$	54,402		Accounts payable	$	191,422		$	199,111
Accounts receivable		60,781			81,139		Notes payable		86,520			138,088
Inventory		127,265			193,375
							Total	$	277,942		$	337,199
Total	$	230,692		$	328,916
							Long-term debt	$	240,000		$	176,750
							Owners’ equity
							Common stock and paid-in surplus	$	215,000		$	215,000
							Accumulated retained earnings		155,597			189,495
Fixed assets
Net plant and equipment	$	657,847		$	589,528		Total	$	370,597		$	404,495
Total assets	$	888,539		$	918,444		Total liabilities and owners’ equity	$	888,539		$	918,444
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 of 2018 is computed as follows:

= current assets / current liabilities

= $ 230,692 / $ 277,942

= 0.83 Approximately

Current ratio of 2019 is computed as follows:

= current assets / current liabilities

= $ 328,916 / $ 337,199

= 0.98 Approximately

b. Quick ratio of 2018 is computed as follows:

= (current assets - Inventories) / current liabilities

= ($ 230,692 - $ 127,265) / $ 277,942

= 0.37 Approximately

Quick ratio of 2019 is computed as follows:

= (current assets - Inventories) / current liabilities

= ($ 328,916 - $ 193,375) / $ 337,199

= 0.40 Approximately

c. Cash ratio of 2018 is computed as follows:

= Cash / Current liabilities

= $ 42,646 / $ 277,942

= 0.15 Approximately

Cash ratio of 2019 is computed as follows:

= Cash / Current liabilities

= $ 54,402 / $ 337,199

= 0.16 Approximately

d. Debt-equity ratio of 2018 is computed as follows:

= (Total current liabilities + Long term debt) / (common stock and paid in surplus + Accumulated retained earnings)

= ($ 277,942 + $ 240,000) / ($ 215,000 + $ 155,597)

= $ 517,942 / $ 370,597

= 1.40 Approximately

Debt-equity ratio of 2019 is computed as follows:

= (Total current liabilities + Long term debt) / (common stock and paid in surplus + Accumulated retained earnings)

= ($ 337,199 + $ 176,750) / ($ 215,000 + $ 189,495)

= $ 513,949 / $ 404,495

= 1.27 Approximately

Equity multiplier of 2018 is computed as follows:

= Total Assets / (common stock and paid in surplus + Accumulated retained earnings)

= $ 888,539 / ($ 215,000 + $ 155,597)

= $ 888,539 / $ 370,597

= 2.40 Approximately

Equity multiplier of 2019 is computed as follows:

= Total Assets / (common stock and paid in surplus + Accumulated retained earnings)

= $ 918,444 / ($ 215,000 + $ 189,495)

= $ 918,444 / $ 404,495

= 2.27 Approximately

e. Total debt ratio of 2018 is computed as follows:

= (Total current liabilities + Long term debt) / Total Assets

= ($ 277,942 + $ 240,000) / $ 888,539

= $ 517,942 / $ 888,539

= 0.58 Approximately

Total debt ratio of 2019 is computed as follows:

= (Total current liabilities + Long term debt) / Total Assets

= ($ 337,199 + $ 176,750) / $ 918,444

= $ 513,949 / $ 918,444

= 0.56 Approximately

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