Required information [The following information applies to the questions displayed below.] Simon Company’s year-end balance sheets...

Required information [The following information applies to the questions displayed below.] Simon Company’s year-end balance sheets follow. At December 31 2017 2016 2015 Assets Cash $ 31,313 $ 36,602 $ 36,999 Accounts receivable, net 88,959 63,420 49,332 Merchandise inventory 110,719 83,805 53,069 Prepaid expenses 10,084 9,418 4,153 Plant assets, net 284,405 259,755 233,947 Total assets $ 525,480 $ 453,000 $ 377,500 Liabilities and Equity Accounts payable $ 129,536 $ 78,854 $ 50,827 Long-term notes payable secured by mortgages on plant assets 98,790 103,148 82,593 Common stock, $10 par value 162,500 162,500 162,500 Retained earnings 134,654 108,498 81,580 Total liabilities and equity $ 525,480 $ 453,000 $ 377,500 The company’s income statements for the years ended December 31, 2017 and 2016, follow. For Year Ended December 31 2017 2016 Sales $ 683,124 $ 539,070 Cost of goods sold $ 416,706 $ 350,396 Other operating expenses 211,768 136,385 Interest expense 11,613 12,399 Income taxes 8,881 8,086 Total costs and expenses 648,968 507,266 Net income $ 34,156 $ 31,804 Earnings per share $ 2.10 $ 1.96 Calculate the company’s long-term risk and capital structure positions at the end of 2017 and 2016 by computing the following ratios.

(1) Debt and equity ratios.

Debt Ratio Choose Numerator: / Choose Denominator: = Debt Ratio / = Debt ratio 2017: / = % 2016: / = %

Equity Ratio Choose Numerator: / Choose Denominator: = Equity Ratio / = Equity ratio 2017: / = % 2016: / = %

(2) Debt-to-equity ratio.

Debt-To-Equity Ratio Choose Numerator: / Choose Denominator: = Debt-To-Equity Ratio / = Debt-to-equity ratio 2017: / = 0 to 1 2016: / = 0 to 1

Solutions

Expert Solution

2017:

Total Debt = Accounts Payable + Long-term Notes Payable Secured by Mortgages on Plant Assets
Total Debt = $129,536 + $98,790
Total Debt = $228,326

Total Equity = Common Stock, $10 Par Value + Retained Earnings
Total Equity = $162,500 + $134,654
Total Equity = $297,154

Debt Ratio = Total Debt / Total Assets
Debt Ratio = $228,326 / $525,480
Debt Ratio = 0.4345 or 43.45%

Equity Ratio = Total Equity / Total Assets
Equity Ratio = $297,154 / $525,480
Equity Ratio = 0.5655 or 56.55%

Debt-Equity Ratio = Total Debt / Total Equity
Debt-Equity Ratio = $228,326 / $297,154
Debt-Equity Ratio = 0.77 to 1

2016:

Total Debt = Accounts Payable + Long-term Notes Payable Secured by Mortgages on Plant Assets
Total Debt = $78,854 + $103,148
Total Debt = $182,002

Total Equity = Common Stock, $10 Par Value + Retained Earnings
Total Equity = $162,500 + $108,498
Total Equity = $270,998

Debt Ratio = Total Debt / Total Assets
Debt Ratio = $182,002 / $453,000
Debt Ratio = 0.4018 or 40.18%

Equity Ratio = Total Equity / Total Assets
Equity Ratio = $270,998 / $453,000
Equity Ratio = 0.5982 or 59.82%

Debt-Equity Ratio = Total Debt / Total Equity
Debt-Equity Ratio = $182,002 / $270,998
Debt-Equity Ratio = 0.67 to 1

ekkarill92 answered 3 months ago

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