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	$	45,262		$	57,602		Accounts payable	$	190,922		$	198,611
Accounts receivable		61,281			81,639		Notes payable		86,020			137,588
Inventory		126,088			192,061
							Total	$	276,942		$	336,199
Total	$	232,631		$	331,302
							Long-term debt	$	239,000		$	175,750
							Owners’ equity
							Common stock and paid-in surplus	$	216,000		$	216,000
							Accumulated retained earnings		158,636			192,931
Fixed assets
Net plant and equipment	$	657,947		$	589,578		Total	$	374,636		$	408,931
Total assets	$	890,578		$	920,880		Total liabilities and owners’ equity	$	890,578		$	920,880

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

Solution:

Part A )

2018 current ratio = Current assets / Current Liabilities = $232,631 / $276,942 = 0.84

2019 current ratio = Current assets / Current Liabilities = $331,302 / $336,199 = 0.99

Part B )

2018 Quick ratio = (Current assets-Inventory) / Current Liabilities = ($232,631- 126,088) / $276,942 = 0.38

2019 Quick ratio = (Current assets-Inventory) / Current Liabilities = ($331,302- $192,061)/ $336,199 = 0.41

Part C)

2018 cash ratio = Cash / Current Liabilities = $45,262 / $276,942 = 0.16

2019 cash ratio = Cash / Current Liabilities = $57,602 / $336,199 = 0.17

Part D)

2018 debt-equity ratio = Debt / Equity = $239,000 / $374,636 = 0.64

2018 equity multiplier = Asset / Equity = $890,578 / $374,636 = 2.34

2019 debt-equity ratio = Debt / Equity = $175,750 / $408,931 = 0.43

2018 equity multiplier = Asset / Equity = $920,880/ $408,931 = 2.25

Part E)

2018 total debt ratio = Debt / Assets = $239,000 / $890,578 = 0.27

2019 total debt ratio = Debt / Assets = $175,750 / $920,880 = 0.19