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 a 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 an 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.

Using the data from the statements developed by Harry and Belinda, calculate the following financial ratios.

1.Liquidity ratio

2. asset to debt ratio

3. Debt to income ratio

4.Debt payments to disposable income ratio

5.Investment assets to total assets ratio

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

Balance Sheet for Harry and Belinda Johnson January 1, 2018 ASSETS Monetary Assets Cash on hand 1,070 3.7 Savings (First Credit Union) 1,200 4.1 Savings (Far West Savings Bank) 4,000 13.7 Savings (Homestead credit union) 2,260 7.7 Checking account (First Credit Union) 2,100 7.2 Total monetary assets $ 10,630 36.3 Tangible Assets Automobile (3-year old Toyota) 10,950 37.4 Personal property 2,200 7.5 Furniture 1,900 6.5 Total tangible assets $15,050 51.5 Investment Assets Harry's retirement account 1,170 4.0 Belinda's retirement account 2,400 8.2 Total investment assets $ 3,570 12.2 Total Assets $29,250 100.0 LIABILITIES Short-Term liabilities Visa credit card 390 1.3 Target credit card 45 0.2 Dental bill 370 1.3 Total short-term liabilities $ 805 2.8 Long-Term liabilities Vehicle loan (First Credit Union) 13,750 47.0 Student loan (Belinda) 8,100 27.7 Total long-term liabilities $21,850 74.7 Total Liabilities $22,655 77.5 Net Worth $ 6,595 22.5 Total Liabilities and Net Worth $29,250 100.0 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 1.5 960 1.5 Savings/emergencies Harry's retirement plan Belinda's retirement plan 1,170 1.8 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 1,200 1.8 Clothing and upkeep 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