Angel Martin is a young entrepreneur who operates Martin Music Services, offerin
ID: 2419029 • Letter: A
Question
Angel Martin is a young entrepreneur who operates Martin Music Services, offering singing lessons and instruction on musical instruments. Martin wishes to expand but needs a $30,000 loan. The bank requests Martin to prepare a balance sheet and key financial ratios. Martin has not kept formal records but is able to provide the following accounts and their amounts as of December 31, 2013. Cash : $ 3,600 Prepaid Rent: 9,400 Accounts Payable: 2,200 Annual net income: 40,000 Accounts Receivable: $ 9,600 Store Supplies: 6,600 Unearned lesson fees : 15,600 Prepaid insurance: 1,500 Equipment : 50,000 Total Equity: 62,900
1. Prepare a balance sheet as of December 31, 2015, for Martin Music Services. (Report only the total equity amount on the balance sheet.)
2. Compute Martin’s debt ratio and its return on assets (the latter ratio is defined in Chapter 1). Assume average assets equal its ending balance.
3. Do you believe the prospects of a $30,000 bank loan are good? Why or why not?
Explanation / Answer
Partial balnce sheet
Shareholders equity
Equity
Total Shareholders equity
62900
62900
Answer 2
Debt ratio => (Long term short term debt / total assets) *100
=> (2200/80700) *100
Debt ratio => 2.73%
Return on assets => net income / total assets
=> (40000/80700)*100
Return on assets => 50%
Answer 3
Yes, Martin should take loan of $ 30000, as it is important for her business in order to expand business, an her debt ratio is too less, and return on assets is high so she can easily bear loan in her business, and must go for it.
Particulars Amounts($) Toatl Amount ($)Shareholders equity
Equity
Total Shareholders equity
62900
62900