At the end of the month, Sara notices that she has the following balances in her
ID: 2600739 • Letter: A
Question
At the end of the month, Sara notices that she has the following balances in her ledger:
Account
Amount
1. How rich is Sara? (The liabilities reflect values after current bills have already been paid. Therefore, do not include current expenses as debts.)
2. What is Sara's liquidity ratio?
3. Which of the following is the best indicator of Sara"s solvency?
4.
What was Sara's net gain last month?
Account
Amount
Cash $300 Checking Account 900 Monthly Car Payment 350 Credit Card Balance 800 Monthly Wage Income 2,000 Certificate of Deposit 3,000 Car 5,800 Other Illiquid Investment Assets 1,600 Monthly Clothing Expense 100 Monthly Food Expense 300 Monthly Interest Expense 30 Car Loan Balance 4,200 Monthly Rent 750 Monthly Interest and Dividend Income 120 Impulse and Miscellaneous Expenses 180 Savings Account 800Explanation / Answer
1. How rich is Sara = Net Assets of Sara
= Assets - Liabilities
=Cash+ Check Account+ Certificate of Deposit+ Car+ other Investment assets+ Savings account - Credit Card- Car Loan
= $ (300+900+3000+5800+1600+800-800-4200)
= $ 7400
C. Option is correct
2. Liquidity Ratios are of two types : Current Ratio and quick ratio
Here we have taken Liquidity Ratio= Current Assets/ Current Liab
= 0.86
A.is correct option
3. Since Solvency Ratio is higher the better
Hence the highest ratio is 2.48
D.is correct
4. Monthly Income= All Incomes- All Expenses
= $2000+$ 120- $350-$100-$300-$30-$750-$180
= $410
C.option is correct
Please note 2.answer is based on an assumption, in case of different assumption answer may differ.
Happy Learning :)
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