Concept explainers
a
Case summary: HJ and BJ both are employed, decided to begin financial planning, they have determined fair market price of their tangible assets from various sources available and they have used ratio analyses. They also worked for reducing their budgetary estimates by using the information available.
Characters in the case: HJ and BJ.
Adequate Information: HJ’s earns salary of $4,080 per month and also receives $3,000 in interest and BJ earns salary of $6,400 per month expecting increase in rent for $100 a month. They have decided to begin financial planning and have to determine the fair market price of their tangible investments. They are required to use different tools of financial ratios to interpret financial statements. They have to established long term-goals. They did some calculations to determine how much they had to save for each goals and created financial statements, budgets and analysis. It is required to make specific recommendations how they can reduce budgetary estimates.
To determine: The way H and B determined the fair market prices of their tangible and investment assets.
Introduction:
Financial statements: It shows value of assets and liabilities of an individual or family as well as their income and expenditure. The two most useful statements are balance sheet and the cash-flow statement.
Financial ratios are mathematical calculations intended to simplify the process of assessing your financials and the progress of your financial conditions using financial statements, ratios act as tools to develop saving, spending, and credit use patterns according to your objectives.
b
Case summary: HJ and BJ both are employed, decided to begin financial planning, they have determined fair market price of their tangible assets from various sources available and they have used ratio analyses. They also worked for reducing their budgetary estimates by using the information available.
Characters in the case: HJ and BJ.
Adequate Information: HJ’s earns salary of $4,080 per month and also receives $3,000 in interest and BJ earns salary of $6,400 per month expecting increase in rent for $100 a month. They have decided to begin financial planning and have to determine the fair market price of their tangible investments. They are required to use different tools of financial ratios to interpret financial statements. They have to established long term-goals. They did some calculations to determine how much they had to save for each goals and created financial statements, budgets and analysis. It is required to make specific recommendations how they can reduce budgetary estimates.
To determine: Liquidity ratio, asset-to-debt ratio, debt-to-income ratio, debt payments-to-disposable income ratio, and investment assets-to-total assets ratio are to be calculated using data from the cash flow statement developed by H and B along with suggestion given by these ratio’s about the financial situation of H and B and whether H and B should incur more debt.
Introduction:
Financial statements: It shows value of assets and liabilities of an individual or family as well as their income and expenditure. The two most useful statements are balance sheet and the cash-flow statement.
Financial ratios are mathematical calculations intended to simplify the process of assessing your financials and the progress of your financial conditions using financial statements, ratios act as tools to develop saving, spending, and credit use patterns according to your objectives.
c
Case summary: HJ and BJ both are employed, decided to begin financial planning, they have determined fair market price of their tangible assets from various sources available and they have used ratio analyses. They also worked for reducing their budgetary estimates by using the information available.
Characters in the case: HJ and BJ.
Adequate Information: HJ’s earns salary of $4,080 per month and also receives $3,000 in interest and BJ earns salary of $6,400 per month expecting increase in rent for $100 a month. They have decided to begin financial planning and have to determine the fair market price of their tangible investments. They are required to use different tools of financial ratios to interpret financial statements. They have to established long term-goals. They did some calculations to determine how much they had to save for each goals and created financial statements, budgets and analysis. It is required to make specific recommendations how they can reduce budgetary estimates.
To discuss: The specific recommendations and the way they can reduce their budget estimates without drastically affecting their lifestyle.
Introduction:
Financial statements: It shows value of assets and liabilities of an individual or family as well as their income and expenditure. The two most useful statements are balance sheet and the cash-flow statement.
Financial ratios are mathematical calculations intended to simplify the process of assessing your financials and the progress of your financial conditions using financial statements, ratios act as tools to develop saving, spending, and credit use patterns according to your objectives.
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Chapter 3 Solutions
Personal Finance (MindTap Course List)
- Hassad owns a rental house on Lake Tahoe. He uses a real estate firm to screen prospective renters, but he makes the final decision on all rentals. He also is responsible for setting the weekly rental price of the house. During the current year, the house rents for 1,500 per week. Hassad pays a commission of 150 and a cleaning fee of 75 for each week the property is rented. During the current year, he incurs the following additional expenses related to the property: a. What is the proper tax treatment if Hassad rents the house for only 1 week (7 days) and uses it 50 days for personal purposes? b. What is the proper tax treatment if Hassad rents the house for 8 weeks (56 days) and uses it 44 days for personal purposes? c. What is the proper tax treatment if Hassad rents the house for 25 weeks (175 days) and uses it 15 days for personal purposes?arrow_forwardCatrina recently graduated from college with a degree in political science. She started a job that pays her $48,000 per year. Her monthly net income is $2,800. She’s moving into her own one-bedroom apartment. She has a car that she makes payments on and she pays for car insurance. She also adopted a cat, so she now has to pay for cat food and vet bills. Catrina has budgeted for the following monthly expenses based on what she expects to spend: Using the information about Catrina's proposed monthly budget above, answer the following questions. Is Catrina budget balanced? If not, what can Catrina do to balance her budget? Is Catrina following the 50, 30 and 20 spending plan in terms of savings? Explain. If Catrina decides to increase savings where would you suggest that she decrease her spending?arrow_forwardThe Financial Statements of harry and Belinda Johnson Suggest Budgeting Problems 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 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 min- utes 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,…arrow_forward
- George runs a coffee shop. His total sales are $107,758 per month. He has the following monthly expenses: rent is $5,140 wage expense is $21,076 material supplies are $10,545. George owns the building where he has his coffee shop. He could rent this space for $11,766 per month. If George only cares about earning the maximum income possible, what is the minimum monthly salary he would have to earn at his next best employment opportunity to get him to close his coffee shop? Enter a whole number with no dollar sign.arrow_forwardmolly has a part time job that pays her a gross income of $135 each week. Her withholding each week is $59.50. She also baby sits. Her saving strategy is to deposit 20 Percent of what she takes home. This week she earned $35 from two baby sitting jobs. How much should she deposit?arrow_forwardThis year Evan graduated from college and took a job as a deliveryman in the city. Evan was paid a salary of $78,300 and he received $700 in hourly pay for part-time work over the weekends. Evan summarized his expenses as follows: Cost of moving his possessions to the city (125 miles away) Interest paid on accumulated student loans Cost of purchasing a delivery uniform Contribution to State University deliveryman program $1,200 3,000 1,600 1,400 Calculate Evan's AGI and taxable income if he files single. Assume that interest payments were initially required on Evan's student loans this year. Evan's AGI Taxable incomearrow_forward
- Kevin Jones, of Elon, North Carolina, is single and recently graduated from law school. He is employed and earns $9,100 per month, an awesome salary for someone only 26 years old. He also has $1,700 withheld for federal income tax, $520 for state income taxes, $680 for Medicare and Social Security taxes, and $240 for health insurance every month. Kevin has outstanding student loans of almost $80,000 on which he pays about $950 per month and a 0% loan on an auto loan payment of $300 on a Ford Fusion Hybrid he purchased new during law school. He is considering taking out a loan to buy a Kawasaki motorcycle. 1. What is Kevin's debt payments-to-disposable income ratio? Round your answer to two decimal places.arrow_forwardMadeline Rollins is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Madeline is living at home and works in a shoe store, earning a gross income of $1,140 per month. Her employer deducts a total of $260 for taxes from her monthly pay. Madeline also pays $160 on several credit card debts each month. The loan she needs for chiropractic school will cost an additional $260 per month. Calculate her debt payments-to-income ratio with and without the college loan. (Remember the 20 percent rule.) (Enter your answers as a percent rounded to 2 decimal places.) Debt Payments-to-Income Ratio With college loan % Without college loan %. Pls show steps complete.arrow_forwardGomez runs a small pottery firm. He hires one helper at $12,000 per year, pays annual rent of $5,000 for his shop, and spends $20,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him$4,000 per year if alternatively invested. He has been offered $15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,000 per year. Total annual revenue from pottery sales is $72,000. Calculate the accounting profit and the economic profit for Gomez’s pottery firm. d. How much is the total implicit cost? (Use a whole number, no currency, no comma, no space) e. How much is the economic profit? (Use a whole number, no currency, no comma, no space)arrow_forward
- Kim is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Kim is living at home and works in a shoe store, earning a gross income of $970 per month. Her employer deducts $221 for taxes from her monthly pay. Kim also pays $98 on several credit card debts each month. The loan she needs for chiropractic school will cost an additional $109 per month. Help Kim make her decision by calculating her debt payments-to-income ratio with and without the college loan. (Remember the 20 percent rule.) (Enter your answers as a percent rounded to 2 decimal places.) Debt Payments-to-Income Ratio Ratio with college loan Ratio without college loanarrow_forwardLaMont works for a company in downtown Chicago. The firm encourages employees to use public transportation (to save the environment) by providing them with transit passes at a cost of $270 per month. a. If LaMont receives one pass (worth $270) each month, how much of this benefit must he include in his gross income each year? b. If the company provides each employee with $270 per month in parking benefits, how much of the parking benefit must LaMont include in his gross income each year?arrow_forwardLaMont works for a company in downtown Chicago. The company encourages employees to use public transportation (to save the environment) by providing them with transit passes at a cost of $284 per month. If LaMont receives one pass (worth $284) each month, how much of this benefit must he include in his gross income each year? If the company provides each employee with $284 per month in parking benefits, how much of the parking benefit must LaMont include in his gross income each year?arrow_forward
