Ratio Analyses for Victor and MariaReview the financial statements of Victor and Maria Hernandez and the financial ratios provided below.Balance Sheet for a Couple with Two Children-Victor and Maria Hernandez, January 1, 2018 Dollars PercentASSETS Monetary Assets Cash on hand 1,200 0.3Savings account 4,200 1.1Victor's checking account 2,700 0.7Maria's checking account 3,300 0.8Tax refund due 700 0.2Rent receivable 650 0.2Total Monetary Assets $ 12,750 3.3%Tangible Assets Home 192,000 49.0Personal property 9,000 2.3Automobiles 9,500 2.4Total Tangible Assets $ 210,500 53.7%Investment Assets Fidelity mutual funds 4,000 1.0Scudder mutual fund 4,500 1.1Ford Motor Company stock 2,500 0.6New York 2038 bonds 4,100 1.0Life insurance cash value 5,400 1.4IRA accounts 34,400 8.8Real estate investment 114,000 29.1Total Investment Assets $168,900 43.1%Total Assets $392,150 100%LIABILITIES Short-Term liabilities Dentist bill due 220 0.1Credit card debt 1,600 0.4Total Short-Term Liabilities $ 1,820 0.5%Long-Term liabilities Vehicle loan 6,400 1.6Home mortgage loan 92,200 23.5Total Long-Term Liabilities $ 98,600 25.1%Total Liabilities $100,420 25.6%Net Worth $291,730 74.4%Total Liabilities and Net Worth $392,150 100.0%Cash Flow Statement for a Couple with Two Children-Victor and Maria Hernandez, January 1, 2018 - December 31, 2018 Dollars PercentINCOME Victor's gross salary 53,000 55.4Maria's salary (part-time) 32,000 33.4Interest and dividends 1,800 1.9Bonus 1,000 1.0Tax refunds 200 0.2Net rental income 7,720 8.1Total Income $95,720 100.0%EXPENDITURES Fixed Expenses Mortgage loan payments 14,400 15.0Real estate taxes 4,800 5.0Homeowner's insurance 1,200 1.3Automobile loan payments 6,000 6.3Automobile insurance and registration 2,100 2.2Life insurance premiums 1,200 1.3Medical insurance (employee portion) 2,800 2.9Emergency fund savings 2,400 2.5Revolving savings fund 1,800 1.9Federal income taxes 10,000 10.4State income taxes 2,600 2.7City income taxes 600 0.6Social Security taxes 6,500 6.8Personal property taxes 1,020 1.1Retirement IRAs 6,000 6.3Total fixed expenses $63,420 66.3%Variable Expenses Food 7,000 7.3Utilities 3,600 3.8Gasoline and maintenance 4,200 4.4Medical expenses 3,400 3.6Medicines 1,750 1.8Clothing and upkeep 1,950 2.0Church 2,400 2.5Gifts 1,400 1.5Personal allowances 3,000 3.1Children's allowances 3,200 3.3Miscellaneous 400 0.4Total Variable Expenses $32,300 33.7%Total Expenses $95,720 100.0%SURPLUS (DEFICIT) $ 0 0.0%Ratios for Evaluating the Financial ProgressRatio Calculation ExampleLiquidity Ratio Monetary assets divided by monthly expenses $12,750/$7,977 = 1.60 ratio or about 1 1/2 monthsAsset-to-Debt Ratio Total assets/total debt $392,150/$100,420 = 3.905 or a 3.9 to 1 ratioDebt-to-Income Ratio Annual debt repayments/gross income × 100 $20,400/$95,720 = 21.31%Debt Payments-to-Disposable Income Ratio Monthly nonmortgage debt payments/monthly disposable (not gross) income $500/$6,102 = 0.082 or 8.2%Investment Assets-to-Total Assets Ratio Investment assets/total assets $168,900/$392,150 = 0.431 or 43.1%Respond to the following questions. How would you interpret their investment assets to total assets ratio?This is an -Select-acceptableunacceptableItem 1 ratio for a couple with children.The Hernandez family appears to have too few monetary assets compared with tangible and investment assets. How would you suggest that they remedy that situation over the next few years?The input in the box below will not be graded, but may be reviewed and considered by your instructor. What are your thoughts on the Hernandez's liquidity ratio? How might they address any issues you see?The input in the box below will not be graded, but may be reviewed and considered by your instructor. Comment on the couple’s diversification of their investment assets.The input in the box below will not be graded, but may be reviewed and considered by your instructor. The Hernandezes seem to receive most of their income from employment rather than investments. What actions would you recommend for them to remedy that imbalance over the next few years?The input in the box below will not be graded, but may be reviewed and considered by your instructor. The Hernandezes want to take a two-week vacation next summer, and they have only eight months to save the necessary $3,400. What reasonable changes in expenses might they consider to increase net surplus and make the needed $425 per month ($3,400/8)?The input in the box below will not be graded, but may be reviewed and considered by your instructor.

“Since you have asked multiple questions, we will solve the one question for you. If you want any…

Answered: How would you interpret their…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Ratio Analyses for Victor and Maria

Review the financial statements of Victor and Maria Hernandez and the financial ratios provided below.

Balance Sheet for a Couple with Two Children- Victor and Maria Hernandez, January 1, 2018
	Dollars	Percent
ASSETS
Monetary Assets
Cash on hand	1,200	0.3
Savings account	4,200	1.1
Victor's checking account	2,700	0.7
Maria's checking account	3,300	0.8
Tax refund due	700	0.2
Rent receivable	650	0.2
Total Monetary Assets	$ 12,750	3.3%
Tangible Assets
Home	192,000	49.0
Personal property	9,000	2.3
Automobiles	9,500	2.4
Total Tangible Assets	$ 210,500	53.7%
Investment Assets
Fidelity mutual funds	4,000	1.0
Scudder mutual fund	4,500	1.1
Ford Motor Company stock	2,500	0.6
New York 2038 bonds	4,100	1.0
Life insurance cash value	5,400	1.4
IRA accounts	34,400	8.8
Real estate investment	114,000	29.1
Total Investment Assets	$168,900	43.1%
Total Assets	$392,150	100%
LIABILITIES
Short-Term liabilities
Dentist bill due	220	0.1
Credit card debt	1,600	0.4
Total Short-Term Liabilities	$ 1,820	0.5%
Long-Term liabilities
Vehicle loan	6,400	1.6
Home mortgage loan	92,200	23.5
Total Long-Term Liabilities	$ 98,600	25.1%
Total Liabilities	$100,420	25.6%
Net Worth	$291,730	74.4%
Total Liabilities and Net Worth	$392,150	100.0%

Cash Flow Statement for a Couple with Two Children- Victor and Maria Hernandez, January 1, 2018 - December 31, 2018
	Dollars	Percent
INCOME
Victor's gross salary	53,000	55.4
Maria's salary (part-time)	32,000	33.4
Interest and dividends	1,800	1.9
Bonus	1,000	1.0
Tax refunds	200	0.2
Net rental income	7,720	8.1
Total Income	$95,720	100.0%
EXPENDITURES
Fixed Expenses
Mortgage loan payments	14,400	15.0
Real estate taxes	4,800	5.0
Homeowner's insurance	1,200	1.3
Automobile loan payments	6,000	6.3
Automobile insurance and registration	2,100	2.2
Life insurance premiums	1,200	1.3
Medical insurance (employee portion)	2,800	2.9
Emergency fund savings	2,400	2.5
Revolving savings fund	1,800	1.9
Federal income taxes	10,000	10.4
State income taxes	2,600	2.7
City income taxes	600	0.6
Social Security taxes	6,500	6.8
Personal property taxes	1,020	1.1
Retirement IRAs	6,000	6.3
Total fixed expenses	$63,420	66.3%
Variable Expenses
Food	7,000	7.3
Utilities	3,600	3.8
Gasoline and maintenance	4,200	4.4
Medical expenses	3,400	3.6
Medicines	1,750	1.8
Clothing and upkeep	1,950	2.0
Church	2,400	2.5
Gifts	1,400	1.5
Personal allowances	3,000	3.1
Children's allowances	3,200	3.3
Miscellaneous	400	0.4
Total Variable Expenses	$32,300	33.7%
Total Expenses	$95,720	100.0%
SURPLUS (DEFICIT)	$ 0	0.0%

Ratios for Evaluating the Financial Progress
Ratio	Calculation	Example
Liquidity Ratio	Monetary assets divided by monthly expenses	$12,750/$7,977 = 1.60 ratio or about 1 1/2 months
Asset-to-Debt Ratio	Total assets/total debt	$392,150/$100,420 = 3.905 or a 3.9 to 1 ratio
Debt-to-Income Ratio	Annual debt repayments/gross income × 100	$20,400/$95,720 = 21.31%
Debt Payments-to-Disposable Income Ratio	Monthly nonmortgage debt payments/monthly disposable (not gross) income	$500/$6,102 = 0.082 or 8.2%
Investment Assets-to-Total Assets Ratio	Investment assets/total assets	$168,900/$392,150 = 0.431 or 43.1%

Respond to the following questions.

How would you interpret their investment assets to total assets ratio?

This is an -Select-acceptableunacceptableItem 1 ratio for a couple with children.

The Hernandez family appears to have too few monetary assets compared with tangible and investment assets. How would you suggest that they remedy that situation over the next few years?
The input in the box below will not be graded, but may be reviewed and considered by your instructor.

What are your thoughts on the Hernandez's liquidity ratio? How might they address any issues you see?

The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Comment on the couple’s diversification of their investment assets.

The input in the box below will not be graded, but may be reviewed and considered by your instructor.
The Hernandezes seem to receive most of their income from employment rather than investments. What actions would you recommend for them to remedy that imbalance over the next few years?

The input in the box below will not be graded, but may be reviewed and considered by your instructor.
The Hernandezes want to take a two-week vacation next summer, and they have only eight months to save the necessary $3,400. What reasonable changes in expenses might they consider to increase net surplus and make the needed $425 per month ($3,400/8)?

The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.