Victor and Maria Hernandez Victor and Maria, both in their late 30s, have two children: John, age 13 and Joseph, age 15. Victor has had a long sales career with a retail appliance store. Maria works part-time as a medical records assistant. The Hernandezs own two vehicles and their home, on which they have a mortgage. They will face many financial challenges over the next 20 years, as their children drive, go to college, and leave home and go out in the world on their own. Victor and Maria also recognize the need to further prepare for their retirement and the challenges of aging. Victor and Maria spent some time making up their first balance sheet, which is shown in the table. 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   4,500   1.1% Scudder mutual fund   5,500   1.4% Ford Motor Company stock   2,700   0.7% New York 2038 bonds   4,000   1.0% Life insurance cash value   5,600   1.4% IRA accounts   34,300   8.8% Real estate investment   112,000   28.6% Total Investment Assets   $168,600   43.0% Total Assets   $391,850   100.0% LIABILITIES         Short-Term liabilities         Dentist bill   220   0.1% Credit card debt   1,500   0.4% Total Short-term Liabilities   $    1,720   0.4% Long-Term liabilities         Vehicle loan   8,100   2.1% Home mortgage loan   92,200   23.5% Total long-term liabilities   $100,300   25.6% Total Liabilities   $102,020   26.0% Net Worth   $289,830   74.0% Total Liabilities and Net Worth   $391,850   100.0%   Victor and Maria are a bit confused about how various financial activities can affect their net worth.   Assume that their home is now appraised at $200,000 and the value of their automobile has dropped to $8,000. Calculate and characterize the effects of these changes on their net worth. Round your answer to the nearest dollar. Net worth would -Select-decreaseincreaseItem 1 by $   because the value of the real estate rose -Select-less thanmore thanby the same amount asItem 3 the value of the car declined. Calculate the effects of these changes on their asset-to-debt ratio. Round your answers to three decimal places. Old asset-to-debt ratio:  New asset-to-debt ratio:  If Victor and Maria take out a bank loan for $1,500 and pay off their credit card debts totaling $1,500, what effects would these changes have on their net worth? Taking out a bank loan to pay off the credit card liability would -Select-decreaseincreasenot affectItem 6 the Hernandezs' net worth.

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Chapter1: Financial Statements And Business Decisions
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Victor and Maria Hernandez

Victor and Maria, both in their late 30s, have two children: John, age 13 and Joseph, age 15. Victor has had a long sales career with a retail appliance store. Maria works part-time as a medical records assistant. The Hernandezs own two vehicles and their home, on which they have a mortgage. They will face many financial challenges over the next 20 years, as their children drive, go to college, and leave home and go out in the world on their own. Victor and Maria also recognize the need to further prepare for their retirement and the challenges of aging.

Victor and Maria spent some time making up their first balance sheet, which is shown in the table.

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   4,500   1.1%
Scudder mutual fund   5,500   1.4%
Ford Motor Company stock   2,700   0.7%
New York 2038 bonds   4,000   1.0%
Life insurance cash value   5,600   1.4%
IRA accounts   34,300   8.8%
Real estate investment   112,000   28.6%
Total Investment Assets   $168,600   43.0%
Total Assets   $391,850   100.0%
LIABILITIES        
Short-Term liabilities        
Dentist bill   220   0.1%
Credit card debt   1,500   0.4%
Total Short-term Liabilities   $    1,720   0.4%
Long-Term liabilities        
Vehicle loan   8,100   2.1%
Home mortgage loan   92,200   23.5%
Total long-term liabilities   $100,300   25.6%
Total Liabilities   $102,020   26.0%
Net Worth   $289,830   74.0%
Total Liabilities and Net Worth   $391,850   100.0%

 

Victor and Maria are a bit confused about how various financial activities can affect their net worth.

 

    1. Assume that their home is now appraised at $200,000 and the value of their automobile has dropped to $8,000. Calculate and characterize the effects of these changes on their net worth. Round your answer to the nearest dollar.
      Net worth would -Select-decreaseincreaseItem 1 by $   because the value of the real estate rose -Select-less thanmore thanby the same amount asItem 3 the value of the car declined.

      Calculate the effects of these changes on their asset-to-debt ratio. Round your answers to three decimal places.
      Old asset-to-debt ratio: 
      New asset-to-debt ratio: 

    2. If Victor and Maria take out a bank loan for $1,500 and pay off their credit card debts totaling $1,500, what effects would these changes have on their net worth?

      Taking out a bank loan to pay off the credit card liability would -Select-decreaseincreasenot affectItem 6 the Hernandezs' net worth.

 

  1. If Victor and Maria sell their New York 2038 bond and put the cash into the savings account, what effects would this have on their net worth and liquidity ratio? Assume their annual expenses are $86,374. Round your answers to three decimal places.

    Selling the New York bond would -Select-decreaseincreasenot affectItem 7 the Hernandezs' net worth.
    The liquidity ratio would -Select-decreaseincreaseItem 8 from  to  .
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