Homework $4$

Ch $4$

Analyzing a Balance Sheet

Rhonda Rancher has applied for a loan. Her banker, Larry Loanmaker, says the old balance sheet on file must be brought up to date before a loan will be considered. Rhonda spends the rest of the afternoon taking inventory and gathering other information. She constructs her current balance sheet as of February $15$th based on the information listed below.

After reading through Rhonda$$s updated current situation, analyze her balance sheet and answer the questions below regarding her financial situation.

Milo on hand $4200$ cwt$.$ @ $$4\mathrm{.}40$ per cwt$.$

Hay on hand $75$ tons @ $$50\mathrm{.}00$ per ton

Growing wheat $280$ acres @ $$22\mathrm{.}50$ per acre

Farm mortgage $($due $4/01)$ $$14,000$ principal

$$20,000$ accrued interest

balance after $4/01$ payment $$208,000$

Buildings & improvements $$48,000$

Note payable on feeder cattle $($all due $11/15)$ $$34,000$

Calves $($to be sold in May$)98$ head @ $$275$ per head

Feeder cattle $($to be sold in $60$ days$)138$ head @ $$575$ per head

Note payable at bank $($all due $3/1)$ $$52,000$

Vehicles $$15,500$

Other machinery & equipment $$80,500$

Loan on beef cows $($due $10/01)$ $$9,000$ principal,

$$3,900$ accrued interest

balance after $10/1$ payment $$38,000$

Land $($present market value$)1020$ acres @ $$560$ per acre

Beef breeding cows $106$ head @ $$650$ per head

Bulls $4$ head @ $$1,000$ each

Checking account balance $$5,400$

Account payable at Joe's Feed & Seed $$4,200$

Account receivable $$1,600$

Shop Equip. $($welder$,$ lathe, drill press, etc.$)$ $$2,000$

Ford Motor Co$.$ stock $200$ shares @ $$65$ per share

Other Information

$1)$ Has paid in advance for $$6,000$ worth of feed in order to get a good price on it$.$ The feed will be delivered in May.

$2)$ Income and social security taxes on last year$$s income is estimated at $$7,200.$

$3)$ Rhonda contributed $$50,000$ to get her business started.

$4)$ Retained earnings since the beginning of the business equals $$305,000.$

Complete the following questions and show your work where applicable.

$1.$ What is Rhonda's owner's equity as of February $15?$

Answer$\_\_\_\_\_$$$560,630\_\_\_\_\_\_\_\_$

$2.$ How much working capital does Rhonda have?

Answer$\_\_\_\_\_\_\_$$$16,530\_\_\_\_\_\_$

$3.$ What is her current ratio?

Answer$\_\_\_\_\_\_1\mathrm{.}1\_\_\_\_\_\_\_$

$4.$ What is her debt$/$asset ratio?

Answer$\_\_\_\_\_\_0\mathrm{.}41\_\_\_\_\_\_\_$

$5.$ What is her debt$/$equity ratio?

Answer$\_\_\_\_\_\_0\mathrm{.}69\_\_\_\_\_\_\_$

$6.$ What is her equity$/$asset ratio?

Answer$\_\_\_\_\_\_\_\_\_\_\_\_\_$

$7.$ Assume you are a financial consultant hired by Rhonda to analyze her financial condition. Based on this balance sheet, what part of her financial condition $($liquidity or solvency$)$ is most in need of improvement? WHY?

$8.$ What does this balance sheet tell you about the amount of profit Rhonda made last year? Explain your answer.

$9.$ Rhonda wants to borrow $$50,000$ from the bank to buy additional beef breeding cows. They will cost $$50,000.$ Assume the loan is made, the cows are purchased.

a$)$ What will Rhonda's owner's equity be immediately after the transactions are completed if there are no other changes on her balance sheet?

Answer$\_\_\_\_\_\_\_\_\_\_\_\_\_$

b$)$ What will her debt$/$asset ratio be$?$

Answer$\_\_\_\_\_\_\_\_\_\_\_\_\_$

c$)$ What will be her debt$/$equity ratio be$?$

Answer$\_\_\_\_\_\_\_\_\_\_\_\_\_$