Question

In: Accounting

The following data were taken from the financial statements of Hunter Inc. for December 31 of...

The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:

Current Year Previous Year
Accounts payable $510,000 $130,000
Current maturities of serial bonds payable 320,000 320,000
Serial bonds payable, 10% 1,270,000 1,590,000
Common stock, $1 par value 60,000 80,000
Paid-in capital in excess of par 660,000 660,000
Retained earnings 2,280,000 1,810,000

The income before income tax was $588,300 and $514,800 for the current and previous years, respectively.

a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.

Current year
Previous year

b. Determine the times interest earned ratio for both years. Round to one decimal place.

Current year
Previous year

c. The ratio of liabilities to stockholders' equity has (improved or deteriorated) and the times interest earned ratio has (improved or deteriorated) from the previous year. These results are the combined result of a (larger or smaller) income before income taxes and (larger or lower) interest expense in the current year compared to the previous year.

Solutions

Expert Solution

Computation of Ratio of Liabilities to Stockholder Equity
Current Year Last Year
Total Liabilities
Accoutn Payable $510,000 $130,000
Current Maturities of Serial Bond Payable $320,000 $320,000
Serial Bond Payable $1,270,000 $1,590,000
Total Liabilities $2,100,000 $2,040,000
Stockholder Equity
Common Stock $60,000 $80,000
Paid in Capitla in Excess of par $660,000 $660,000
Retained Earning $2,280,000 $1,810,000
Total Stockholder Equity $3,000,000 $2,550,000
Ratio of Liabilities to Stockholder Equity
(a/b)
0.7 0.8
Computation of Times Interest Earned Ratio
Current Year Last Year
Earning Before Interest and Tax
Income Before Tax $588,300 $514,800
Interest $159,000 $191,000
(1270000+320000)*10% (1590000+320000)*10%
Earning Before Interest and Tax $747,300 $705,800
Times Interest Earned Ratio
(EBIT/ Interest)
4.7                                                 3.70
The ratio of liabilities to stockholders' equity has (improved) and the times interest earned ratio has (improved) from the previous year. These results are the combined result of a (larger)income before income taxes and ( lower) interest expense in the current year compared to the previous year.

Related Solutions

The following data were taken from the financial statements of Hunter Inc. for December 31 of...
The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years: Current Year Previous Year Accounts payable $360,000 $110,000 Current maturities of serial bonds payable 240,000 240,000 Serial bonds payable, 10% 1,020,000 1,260,000 Common stock, $1 par value 60,000 70,000 Paid-in capital in excess of par 590,000 600,000 Retained earnings 2,050,000 1,630,000 The income before income tax was $415,800 and $363,800 for the current and previous years, respectively. a. Determine the ratio...
The following data were taken from the financial statements of Hunter Inc. for December 31 of...
The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years: Current Year Previous Year Accounts payable $918,000 $217,000 Current maturities of serial bonds payable 540,000 540,000 Serial bonds payable, 10% 2,150,000 2,690,000 Common stock, $1 par value 90,000 110,000 Paid-in capital in excess of par 990,000 1,000,000 Retained earnings 3,430,000 2,720,000 The income before income tax expense was $941,500 and $823,800 for the current and previous years, respectively. a. Determine the...
The following selected data were taken from the financial statements of Vidahill Inc. for December 31,...
The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5: December 31 20Y7 20Y6 20Y5 Total assets $268,000 $241,000 $214,000 Notes payable (8% interest) 90,000 90,000 90,000 Common stock 36,000 36,000 36,000 Preferred 3% stock, $100 par 18,000 18,000 18,000 (no change during year) Retained earnings 100,665 69,485 54,000 The 20Y7 net income was $31,720, and the 20Y6 net income was $16,025. No dividends on common stock were declared between...
The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:
Profitability RatiosThe following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:December 3120Y720Y620Y5Total assets$321,000$289,000$257,000Notes payable (8% interest)110,000110,000110,000Common stock44,00044,00044,000Preferred 7% stock, $100 par22,00022,00022,000(no change during year)Retained earnings113,65083,49066,000The 20Y7 net income was $31,700, and the 20Y6 net income was $19,030. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7.a. Determine the return on total assets, the return on stockholders'...
The following selected data were taken from the financial statements of Squiggle Group Inc. for December...
The following selected data were taken from the financial statements of Squiggle Group Inc. for December 31, 2016, 2015 and 2014: December 31 2016 2015 2014 Total assets $294,000 $265,000 $236,000 Notes payable (10% interest) 100,000 100,000 100,000 Common stock 40,000 40,000 40,000 Preferred 6% stock, $100 par 20,000 20,000 20,000 (no change during year) Retained earnings 93,395 73,850 60,000 The 2016 net income was $20,745, and the 2015 net income was $15,050. No dividends on common stock were declared...
The following information was taken from the financial statements of Tolbert Inc. for December 31 of...
The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year: Common stock, $40 par value (no change during the year) $9,600,000 Preferred $5 stock, $100 par (no change during the year) 3,000,000 The net income was $822,000 and the declared dividends on the common stock were $60,000 for the current year. The market price of the common stock is $21.00 per share. For the common stock, determine (a) the earnings...
The following information was taken from the financial statements of Tolbert Inc. for December 31 of...
The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year: Common stock, $15 par value (no change during the year) $3,600,000 Preferred $4 stock, $200 par (no change during the year) 6,000,000 The net income was $792,000 and the declared dividends on the common stock were $60,000 for the current year. The market price of the common stock is $19.60 per share. For the common stock, determine (a) the earnings...
The following information was taken from the financial statements of Monarch Resources Inc. for December 31...
The following information was taken from the financial statements of Monarch Resources Inc. for December 31 of the current year: Common stock, $40 par value (no change during the year) $6,400,000 Preferred $10 stock, $200 par (no change during the year) 4,000,000 The net income was $616,000, and the declared dividends on the common stock were $166,400 for the current year. The market price of the common stock is $40 per share. For the common stock, determine (a) the earnings...
The following data were taken from the financial statements of Gates Inc. for the current fiscal...
The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Property, plant, and equipment (net) $1,414,800 Liabilities: Current liabilities $156,000 Note payable, 6%, due in 15 years 786,000 Total liabilities $942,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $942,000 Common stock, $10 par (no change during year) 942,000 Retained earnings: Balance, beginning of year $1,004,000 Net income 357,000 $1,361,000 Preferred dividends $37,680 Common dividends 67,320 105,000 Balance, end of...
The following data were taken from the financial statements of Gates Inc. for the current fiscal...
The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Property, plant, and equipment (net) $1,598,400 Liabilities: Current liabilities $201,000 Note payable, 6%, due in 15 years 999,000 Total liabilities $1,200,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $1,800,000 Common stock, $10 par (no change during year) 1,800,000 Retained earnings: Balance, beginning of year $1,920,000 Net income 674,000 $2,594,000 Preferred dividends $72,000 Common dividends 122,000 194,000 Balance, end of...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT