Victor and Maria, both in their late 30s, have two chil- dren: John, age 13, and...

  

 

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Victor and Maria, both in their late 30s, have two chil- dren: 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 Her- nandezes 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 Table 3-2. Victor and Maria are a bit confused about how various financial activities can affect their net worth. (a) Assume that their home is now appraised at $200,000 and the value of their automobile has dropped to $8,500. Calculate and characterize the effects of these changes on their net worth and on their asset-to-debt ratio. (b) If Victor and Maria take out a bank loan for $1,600 and pay off their credit card debts totaling $1,600, what effects would these changes have on their net worth? (c) If Victor and Maria sell their New York 2038 bond and put the cash into the savings account, what ef- fects would this have on their net worth and liquid- ity ratio? 82 PART 1 Table 3-2 ASSETS Monetary Assets Tangible Assets Investment Assets LIABILITIES Short-Term Liabilities Long-Term Liabilities Sample Balance Sheet The total assets on a balance sheet must equal the tou liabilities plus the net worth. Both sides must balance, which is the source of the same "balance sheet." You decide how much detail to include to show your financial con dition accurately on a given date. The balance sheet shown in Table 3-2 reflects the degree of detail and complexity that might be included for a couple with two child (Victor and Maria Hernandez). Balance Sheet for a Couple with Two Children-Victor and Maria Hernandez, January 1, 2018 Cash on hand Savings account Victor's checking account Maria's checking account Tax refund due Rent receivable Total Monetary Assets Home Personal property Automobiles Total Tangible Assets Fidelity mutual funds Scudder mutual fund Ford Motor Company stock New York 2038 bonds Life insurance cash value IRA accounts Real estate investment Total Investment Assets Total Assets Dentist bill due Credit card debt Total Short-Term Liabilities Vehicle loan Home mortgage loan Total Long-Term Liabilities Total Liabilities Net Worth Total Liabilities and Net Worth 1,200 4,200 2,700 3,300 700 650 $ 12,750 192,000 9,000 9,500 $210,500 4,500 5,000 2,800 4.000 5,400 34,300 114,000 $170,000 $393,250 220 1,600 $ 1,820 7,700 92,000 $ 99,700 $101,520 $291,730 $393,250 0.3% 1.1% 0.7% 0.8% 0.2% 0.2% 3.2% 48.8% 2.3% 2.4% 53.5% 1.3% 0.7% 1.0% 1.4% 8.7% 29.0% 43.2% 100.0% 0.1% 0.4% 0.5% 2.0% 23,4% 25.4% 25.8% 74.2% 100.0% Victor and Maria, both in their late 30s, have two chil- dren: 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 Her- nandezes 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 Table 3-2. Victor and Maria are a bit confused about how various financial activities can affect their net worth. (a) Assume that their home is now appraised at $200,000 and the value of their automobile has dropped to $8,500. Calculate and characterize the effects of these changes on their net worth and on their asset-to-debt ratio. (b) If Victor and Maria take out a bank loan for $1,600 and pay off their credit card debts totaling $1,600, what effects would these changes have on their net worth? (c) If Victor and Maria sell their New York 2038 bond and put the cash into the savings account, what ef- fects would this have on their net worth and liquid- ity ratio? 82 PART 1 Table 3-2 ASSETS Monetary Assets Tangible Assets Investment Assets LIABILITIES Short-Term Liabilities Long-Term Liabilities Sample Balance Sheet The total assets on a balance sheet must equal the tou liabilities plus the net worth. Both sides must balance, which is the source of the same "balance sheet." You decide how much detail to include to show your financial con dition accurately on a given date. The balance sheet shown in Table 3-2 reflects the degree of detail and complexity that might be included for a couple with two child (Victor and Maria Hernandez). Balance Sheet for a Couple with Two Children-Victor and Maria Hernandez, January 1, 2018 Cash on hand Savings account Victor's checking account Maria's checking account Tax refund due Rent receivable Total Monetary Assets Home Personal property Automobiles Total Tangible Assets Fidelity mutual funds Scudder mutual fund Ford Motor Company stock New York 2038 bonds Life insurance cash value IRA accounts Real estate investment Total Investment Assets Total Assets Dentist bill due Credit card debt Total Short-Term Liabilities Vehicle loan Home mortgage loan Total Long-Term Liabilities Total Liabilities Net Worth Total Liabilities and Net Worth 1,200 4,200 2,700 3,300 700 650 $ 12,750 192,000 9,000 9,500 $210,500 4,500 5,000 2,800 4.000 5,400 34,300 114,000 $170,000 $393,250 220 1,600 $ 1,820 7,700 92,000 $ 99,700 $101,520 $291,730 $393,250 0.3% 1.1% 0.7% 0.8% 0.2% 0.2% 3.2% 48.8% 2.3% 2.4% 53.5% 1.3% 0.7% 1.0% 1.4% 8.7% 29.0% 43.2% 100.0% 0.1% 0.4% 0.5% 2.0% 23,4% 25.4% 25.8% 74.2% 100.0%

Answer rating: 100% (QA)

aThe Hernandezes net worth has decreased by 11500 and their assettodebt ratio has worsened slightly ... View the full answer