Bethesda Mining Company reports the following balance sheet information for 2009 and 2010.
Explanation:
| BETHESDA MINING COMPANY Balance Sheets as of December 31, 2009 and 2010 | |||||||||||||
| 2009 | 2010 | 2009 | 2010 | ||||||||||
| Assets | Liabilities and Owners’ Equity | ||||||||||||
| Current assets | Current liabilities | ||||||||||||
| Cash | $ | 65,470 | $ | 82,487 | Accounts payable | $ | 186,922 | $ | 194,611 | ||||
| Accounts receivable | 65,281 | 85,639 | Notes payable | 82,020 | 133,588 | ||||||||
| Inventory | 116,676 | 181,549 | | | | | | | |||||
| | | | | | | Total | $ | 268,942 | $ | 328,199 | |||
| Total | $ | 247,427 | $ | 349,675 | | | | | | | |||
| | | | | | | Long-term debt | 231,000 | 167,750 | |||||
| Owners’ equity | |||||||||||||
| Common stock and paid-in surplus | $ | 224,000 | $ | 224,000 | |||||||||
| Accumulated retained earnings | 182,232 | 219,704 | |||||||||||
| Fixed assets | | | | | | | |||||||
| Net plant and equipment | $ | 658,747 | $ | 589,978 | Total | $ | 406,232 | $ | 443,704 | ||||
| | | | | | | | | | | | | ||
| Total assets | $ | 906,174 | $ | 939,653 | Total liabilities and owners’ equity | $ | 906,174 | $ | 939,653 | ||||
| | | | | | | | | | | | | ||
| | |||||||||||||
| Required: |
| Based on the balance sheets given for Bethesda Mining, calculate the following financial ratios for each year: |
| (a) | Current ratio. (Round your answers to 2 decimal places (e.g., 32.16).) |
| Current ratio | |
| 2009 | times |
| 2010 | times |
| | |
| (b) | Quick ratio. (Round your answers to 2 decimal places (e.g., 32.16).) |
| Quick ratio | |
| 2009 | times |
| 2010 | times |
| | |
| (c) | Cash ratio. (Round your answers to 2 decimal places (e.g., 32.16).) |
| Cash ratio | |
| 2009 | times |
| 2010 | times |
| | |
| (d) | Debt-equity ratio and equity multiplier. (Round your answers to 2 decimal places (e.g., 32.16).) |
| Debt-equity ratio | Equity multiplier | |
| 2009 | ||
| 2010 | ||
| | ||
| (e) | Total debt ratio. (Round your answers to 2 decimal places (e.g., 32.16).) |
| Total debt ratio | |
| 2009 | |
| 2010 | |
| | |
Explanation:
| (a) | The current ratio is calculated as: |
| Current ratio | = | Current assets / Current liabilities | |
| Current ratio2009 | = | $247,427 / $268,942 | |
| Current ratio2009 | = | 0.92 times | |
| Current ratio2010 | = | $349,675 / $328,199 | |
| Current ratio2010 | = | 1.07 times |
| (b) | The quick ratio is calculated as: |
| Quick ratio | = | (Current assets – Inventory) / Current liabilities | |
| Quick ratio2009 | = | ($247,427 – 116,676) / $268,942 | |
| Quick ratio2009 | = | 0.49 times | |
| Quick ratio2010 | = | ($349,675 – 181,549) / $328,199 | |
| Quick ratio2010 | = | 0.51 times |
| (c) | The cash ratio is calculated as: |
| Cash ratio | = | Cash / Current liabilities | |
| Cash ratio2009 | = | $65,470 / $268,942 | |
| Cash ratio2009 | = | 0.24 times | |
| Cash ratio2010 | = | $82,487 / $328,199 | |
| Cash ratio2010 | = | 0.25 times |
| (d) | The debt-equity ratio is calculated as: |
| Debt-equity ratio | = | Total debt / Total equity | |
| Debt-equity ratio | = | (Current liabilities + Long-term debt) / Total equity | |
| Debt-equity ratio2009 | = | ($268,942 + 231,000) / $406,232 | |
| Debt-equity ratio2009 | = | 1.23 | |
| Debt-equity ratio2010 | = | ($328,199 + 167,750) / $443,704 | |
| Debt-equity ratio2010 | = | 1.12 | |
| And the equity multiplier is: | |||
| Equity multiplier | = | 1 + Debt-equity ratio | |
| Equity multiplier2009 | = | 1 + 1.23 | |
| Equity multiplier2009 | = | 2.23 | |
| Equity multiplier2010 | = | 1 + 1.12 | |
| Equity multiplier2010 | = | 2.12 | |
| (e) | The total debt ratio is calculated as: |
| Total debt ratio | = | Total debt / Total assets | |
| Total debt ratio | = | (Current liabilities + Long-term debt) / Total assets | |
| Total debt ratio2009 | = |
($268,942 + 231,000) / $906,174
| |
| Total debt ratio2009 | = | 0.55 | |
| Total debt ratio2010 | = | ($328,199 + 167,750) / $939,653 | |
| Total debt ratio2010 | = | 0.53 |
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