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 RRSP 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 high school course in personal finance. After initial discussion, they worked together for three evenings to develop the financial statements attached. Note that the cash flow statement covered the first six months of their marriage.

1. Briefly describe how Harry and Belinda probably determined the fair market prices for each of their tangible and investment assets.

1. Using the data from the cash-flow statement developed by Harry and Belinda, calculate the following:
2. liquidity ratio
3. asset-to-debt ratio
4. debt-to-income ratio
5. debt payments-to-disposable income ratio
6. 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?

1. The Johnsons enjoy a high income because both work at well-paying jobs. They have spent parts of three evenings over the past several days discussing their financial values and goals together. They have established three long-term goals: $6,000 for a European vacation to be taken in 2022, $5,000 needed in October 2023 for a down payment on a new automobile, and $30,000 for a down payment on a home to be purchased in December 2025. The Johnsons did some calculations to determine how much they had to save for each goalover the near termto stay on schedule to reach their long-term goals as well as pay for two vacations and an anniversary party. After developing their balance sheet and cash flow statement (attached), the Johnsons made a budget for the year. They then reconciled various conflicting needs and wants until they found that total annual income was close to the total of planned expenses. Next, they created a revolving savings fund in which they were careful to include enough money each month to meet all of their short-term goals. When developing their cash-flow calendar for the year, they noticed a problem: substantial cash deficits in November (-$385) and December (-$585).

Looking at the balance sheet, and cash flow statement, make specific recommendations to the Johnsons on how they could make reductions in their budget estimates. Do not offer suggestions that would alter their new lifestyle drastically, as the couple would reject such ideas.