Harry has worked at a medium-size interior design firm for five years and earns a salary of $4,080 per month. He also receives $3,000 in interest income once a year from a trust fund set up by his deceased father's estate. Belinda earns a salary of $6,400 per month, and she has many job-related benefits including flexible benefits program, life insurance, health insurance, a 401(k) retirement program, workplace financial education, and a credit union. The Johnsons live in an old apartment located approximately halfway between their places of employment. However, their rent will increase by $100 a month in July. Harry drives about ten minutes to his job, and Belinda travels about 15 minutes via public transportation to reach her downtown job. Harry and Belinda's apartment is very nice, but small, and it is furnished primarily with furniture given to them by some of his friends. Soon after getting married, Harry and Belinda decided to begin their financial planning. Fortunately each had taken a college course in personal finance. After initial discussion, they worked together for three evenings to develop the financial statements presented below. Note that the cash flow statement covered the first six months of their marriage. Balance Sheet for Harry and Belinda Johnson January 1, 2018 ASSETS Monetary Assets Cash on hand 1,110 3.8% Savings (First Credit Union) 1,200 4.1% Savings (Far West Savings Bank) 4,000 13.8% Savings (Homestead credit union) 2,260 7.8% Checking account (First Credit Union) 2,100 7.2% Total monetary assets $10,670 36.7% Tangible Assets Automobile (3-year old Toyota) 11,000 37.9% Personal property 2,100 7.2% Furniture 1,600 5.5% Total tangible assets $14,700 50.6% Investment Assets Harry's retirement account 1,170 4.0% Belinda's retirement account 2,500 8.6% Total investment assets $ 3,670 12.6% Total Assets $29,040 100.0% LIABILITIES Short-Term Liabilities Visa credit card 390 1.3% Target credit card 45 0.2% Dental bill 410 1.4% Total short-term liabilities $ 845 2.9% Long-Term Liabilities Vehicle loan (First Credit Union) 13,800 47.5% Student loan (Belinda) 8,000 27.5% Total long-term liabilities $21,800 75.1% Total Liabilities $22,645 78.0% Net Worth $ 6,395 22.0% Total Liabilities and Net Worth $29,040 100.0% Cash-Flow Statement for Harry and Belinda Johnson July 1-December 31, 2017 (First Six Months of Marriage) Cash Flow Dollars Percent INCOME Harry's gross income 24,480 37.1% Belinda's gross income 38,400 58.1% Interest 180 0.3% Harry's trust fund 3,000 4.5% Total Income $66,060 100.0% EXPENDITURES Fixed Expenses Rent 9,600 14.5% Health insurance 1,800 2.7% Life insurance 120 0.2% Renter's insurance 220 0.3% Automobile insurance 600 0.9% Auto loan payments 2,940 4.5% Student loan payments 1,800 2.7% Cable TV and Internet 960 1.5% Savings/emergencies 960 1.5% Harry's retirement plan 1,170 1.8% Belinda's retirement plan 2,400 3.6% Federal income taxes 10,200 15.4% State income taxes 3,000 4.5% Social Security taxes 4,640 7.0% Automobile registration 300 0.5% Total Fixed Expenses 40,710 61.6% Variable Expenses Savings money market fund $ 3,000 4.5% Food (home) 3,800 5.8% Food (out) 1,860 2.8% Utilities 1,320 2.0% Cell phones 660 1.0% Auto gas/maintenance/repairs 1,150 1.7% Doctor's and dentist's bills 1,140 1.7% Medicines 350 0.5% Clothing and upkeep 1,200 1.8% Church and charity 550 0.8% Gifts 1,070 1.6% Public transportation 940 1.4% Personal allowances 2,400 3.6% Entertainment 960 1.5% Family holiday trip 780 1.2% Summer vacation 1,200 1.8% Miscellaneous 560 0.8% Total Variable Expenses $22,940 34.7% Total Expenses $63,650 96.3% SURPLUS (DEFICIT) 130 0.2% Briefly describe how Harry and Belinda probably determined the fair market prices for each of their tangible and investment assets. Using the data from the cash-flow statement developed by Harry and Belinda, calculate the following financial ratios. Round your answers to two decimal places. Liquidity ratio % Asset-to-debt ratio % Debt-to-income ratio % Debt payments-to-disposable income ratio % Investment assets-to-total assets ratio % What do these ratios tell you about the Johnsons' financial situation? Should Harry and Belinda incur more debt, such as credit cards or a new vehicle loan?

Harry has worked at a medium-size interior design firm for five years and earns a salary of $4,080 per month. He also receives $3,000 in interest income once a year from a trust fund set up by his deceased father's estate. Belinda earns a salary of $6,400 per month, and she has many job-related benefits including flexible benefits program, life insurance, health insurance, a 401(k) retirement program, workplace financial education, and a credit union. The Johnsons live in an old apartment located approximately halfway between their places of employment. However, their rent will increase by $100 a month in July. Harry drives about ten minutes to his job, and Belinda travels about 15 minutes via public transportation to reach her downtown job. Harry and Belinda's apartment is very nice, but small, and it is furnished primarily with furniture given to them by some of his friends. Soon after getting married, Harry and Belinda decided to begin their financial planning. Fortunately each had taken a college course in personal finance. After initial discussion, they worked together for three evenings to develop the financial statements presented below. Note that the cash flow statement covered the first six months of their marriage. Balance Sheet for Harry and Belinda Johnson January 1, 2018 ASSETS Monetary Assets Cash on hand 1,110 3.8% Savings (First Credit Union) 1,200 4.1% Savings (Far West Savings Bank) 4,000 13.8% Savings (Homestead credit union) 2,260 7.8% Checking account (First Credit Union) 2,100 7.2% Total monetary assets $10,670 36.7% Tangible Assets Automobile (3-year old Toyota) 11,000 37.9% Personal property 2,100 7.2% Furniture 1,600 5.5% Total tangible assets $14,700 50.6% Investment Assets Harry's retirement account 1,170 4.0% Belinda's retirement account 2,500 8.6% Total investment assets $ 3,670 12.6% Total Assets $29,040 100.0% LIABILITIES Short-Term Liabilities Visa credit card 390 1.3% Target credit card 45 0.2% Dental bill 410 1.4% Total short-term liabilities $ 845 2.9% Long-Term Liabilities Vehicle loan (First Credit Union) 13,800 47.5% Student loan (Belinda) 8,000 27.5% Total long-term liabilities $21,800 75.1% Total Liabilities $22,645 78.0% Net Worth $ 6,395 22.0% Total Liabilities and Net Worth $29,040 100.0% Cash-Flow Statement for Harry and Belinda Johnson July 1-December 31, 2017 (First Six Months of Marriage) Cash Flow Dollars Percent INCOME Harry's gross income 24,480 37.1% Belinda's gross income 38,400 58.1% Interest 180 0.3% Harry's trust fund 3,000 4.5% Total Income $66,060 100.0% EXPENDITURES Fixed Expenses Rent 9,600 14.5% Health insurance 1,800 2.7% Life insurance 120 0.2% Renter's insurance 220 0.3% Automobile insurance 600 0.9% Auto loan payments 2,940 4.5% Student loan payments 1,800 2.7% Cable TV and Internet 960 1.5% Savings/emergencies 960 1.5% Harry's retirement plan 1,170 1.8% Belinda's retirement plan 2,400 3.6% Federal income taxes 10,200 15.4% State income taxes 3,000 4.5% Social Security taxes 4,640 7.0% Automobile registration 300 0.5% Total Fixed Expenses 40,710 61.6% Variable Expenses Savings money market fund $ 3,000 4.5% Food (home) 3,800 5.8% Food (out) 1,860 2.8% Utilities 1,320 2.0% Cell phones 660 1.0% Auto gas/maintenance/repairs 1,150 1.7% Doctor's and dentist's bills 1,140 1.7% Medicines 350 0.5% Clothing and upkeep 1,200 1.8% Church and charity 550 0.8% Gifts 1,070 1.6% Public transportation 940 1.4% Personal allowances 2,400 3.6% Entertainment 960 1.5% Family holiday trip 780 1.2% Summer vacation 1,200 1.8% Miscellaneous 560 0.8% Total Variable Expenses $22,940 34.7% Total Expenses $63,650 96.3% SURPLUS (DEFICIT) 130 0.2% Briefly describe how Harry and Belinda probably determined the fair market prices for each of their tangible and investment assets. Using the data from the cash-flow statement developed by Harry and Belinda, calculate the following financial ratios. Round your answers to two decimal places. Liquidity ratio % Asset-to-debt ratio % Debt-to-income ratio % Debt payments-to-disposable income ratio % Investment assets-to-total assets ratio % What do these ratios tell you about the Johnsons' financial situation? Should Harry and Belinda incur more debt, such as credit cards or a new vehicle loan?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Balance Sheet for Harry and Belinda Johnson
January 1, 2018
ASSETS
Monetary Assets
Cash on hand	1,110	3.8%
Savings (First Credit Union)	1,200	4.1%
Savings (Far West Savings Bank)	4,000	13.8%
Savings (Homestead credit union)	2,260	7.8%
Checking account (First Credit Union)	2,100	7.2%
Total monetary assets	$10,670	36.7%
Tangible Assets
Automobile (3-year old Toyota)	11,000	37.9%
Personal property	2,100	7.2%
Furniture	1,600	5.5%
Total tangible assets	$14,700	50.6%
Investment Assets
Harry's retirement account	1,170	4.0%
Belinda's retirement account	2,500	8.6%
Total investment assets	$ 3,670	12.6%
Total Assets	$29,040	100.0%

LIABILITIES
Short-Term Liabilities
Visa credit card	390	1.3%
Target credit card	45	0.2%
Dental bill	410	1.4%
Total short-term liabilities	$ 845	2.9%
Long-Term Liabilities
Vehicle loan (First Credit Union)	13,800	47.5%
Student loan (Belinda)	8,000	27.5%
Total long-term liabilities	$21,800	75.1%
Total Liabilities	$22,645	78.0%
Net Worth	$ 6,395	22.0%
Total Liabilities and Net Worth	$29,040	100.0%

Cash-Flow Statement for Harry and Belinda Johnson July 1-December 31, 2017 (First Six Months of Marriage)
Cash Flow	Dollars	Percent
INCOME
Harry's gross income	24,480	37.1%
Belinda's gross income	38,400	58.1%
Interest	180	0.3%
Harry's trust fund	3,000	4.5%
Total Income	$66,060	100.0%
EXPENDITURES
Fixed Expenses
Rent	9,600	14.5%
Health insurance	1,800	2.7%
Life insurance	120	0.2%
Renter's insurance	220	0.3%
Automobile insurance	600	0.9%
Auto loan payments	2,940	4.5%
Student loan payments	1,800	2.7%
Cable TV and Internet	960	1.5%
Savings/emergencies	960	1.5%
Harry's retirement plan	1,170	1.8%
Belinda's retirement plan	2,400	3.6%
Federal income taxes	10,200	15.4%
State income taxes	3,000	4.5%
Social Security taxes	4,640	7.0%
Automobile registration	300	0.5%
Total Fixed Expenses	40,710	61.6%
Variable Expenses
Savings money market fund	$ 3,000	4.5%
Food (home)	3,800	5.8%
Food (out)	1,860	2.8%
Utilities	1,320	2.0%
Cell phones	660	1.0%
Auto gas/maintenance/repairs	1,150	1.7%
Doctor's and dentist's bills	1,140	1.7%
Medicines	350	0.5%
Clothing and upkeep	1,200	1.8%
Church and charity	550	0.8%
Gifts	1,070	1.6%
Public transportation	940	1.4%
Personal allowances	2,400	3.6%
Entertainment	960	1.5%
Family holiday trip	780	1.2%
Summer vacation	1,200	1.8%
Miscellaneous	560	0.8%
Total Variable Expenses	$22,940	34.7%
Total Expenses	$63,650	96.3%
SURPLUS (DEFICIT)	130	0.2%

Briefly describe how Harry and Belinda probably determined the fair market prices for each of their tangible and investment assets.
Using the data from the cash-flow statement developed by Harry and Belinda, calculate the following financial ratios. Round your answers to two decimal places.

Liquidity ratio %

Asset-to-debt ratio %

Debt-to-income ratio %

Debt payments-to-disposable income ratio %

Investment assets-to-total assets ratio %

What do these ratios tell you about the Johnsons' financial situation? Should Harry and Belinda incur more debt, such as credit cards or a new vehicle loan?

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Liquidity ratio	%
Asset-to-debt ratio	%
Debt-to-income ratio	%
Debt payments-to-disposable income ratio	%
Investment assets-to-total assets ratio	%