Question

In: Accounting

Ratio of Liabilities to Stockholders' Equity and Times Interest Earned The following data were taken from...

Ratio of Liabilities to Stockholders' Equity and Times Interest Earned

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

Current
YearPrevious
Year

Accounts payable$622,000 $168,000

Current maturities of serial bonds payable380,000 380,000

Serial bonds payable, 10%1,560,000 1,940,000

Common stock, $1 par value70,000 90,000

Paid-in capital in excess of par810,000 810,000

Retained earnings2,780,000 2,210,000

The income before income tax expense was $814,800 and $713,000 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   and the number of times bond interest charges were earned has   from the previous year. These results are the combined result of a   income before income taxes and   interest expense in the current year compared to the previous year.

Solutions

Expert Solution

a

Ratio of liabilities to stockholders' equity = Total liabilities / Total stockholders' equity

Total liabilities = Accounts payable + Current maturities of serial bonds payable + Serial bonds payable,10%

Total stockholders' equity = Common stock + Paid in capital in excess of par + Retained earnings

Current year = $622,000+380,000+1,560,000 / $70,000+810,000+2,780,000

Current year = $2,562,000 / 3,660,000 = 0.7

Previous year = $168,000+380,000+1,940,000 / $90,000+810,000+2,210,000

Previous year = $2,488,000 / 3,110,000 = 0.8

b

Times interest earned ratio = Income before income tax + Interest expense / Interest expense

Current year = $814,800+[(1,560,000+380,000)*10%] / [(1,560,000+380,000)*10%]

Current year = $814,800+194,000 / 194,000 = 5.2

Previous year = $713,000+[(1,940,000+380,000)*10%] / [(1,940,000+380,000)*10%]

Previous year = $713,000+232,000 / 232,000 = 4.1

c.

The ratio of liabilities to stockholders equity has decreased and the number of times bonds interest charges were earned has increased from previous year. These results are the combined result of a higher income before income taxes and lower interest expense in the current year compared to the previous year.


Related Solutions

Ratio of Liabilities to Stockholders' Equity and Times Interest Earned The following data were taken from...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned 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 $744,000 $198,000 Current maturities of serial bonds payable 460,000 460,000 Serial bonds payable, 10% 1,890,000 2,350,000 Common stock, $1 par value 90,000 110,000 Paid-in capital in excess of par 970,000 980,000 Retained earnings 3,360,000 2,670,000 The income before income tax was $564,000 and $493,500 for...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned The following data were taken from...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned 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 $260,000 $224,000 Current maturities of serial bonds payable 340,000 340,000 Serial bonds payable, 10% 1,680,000 2,020,000 Common stock, $1 par value 70,000 100,000 Paid-in capital in excess of par 840,000 840,000 Retained earnings 2,890,000 2,290,000 The income before income tax was $666,600 and $583,300 for...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned The following data were taken from...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned 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 $552,000 $162,000 Current maturities of serial bonds payable 370,000 370,000 Serial bonds payable, 10% 1,520,000 1,890,000 Common stock, $1 par value 80,000 100,000 Paid-in capital in excess of par 900,000 900,000 Retained earnings 3,090,000 2,460,000 The income before income tax was $529,200 and $463,100 for...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned The following data were taken from...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned 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 $604,000 $290,000 Current maturities of serial bonds payable 530,000 530,000 Serial bonds payable, 10% 2,370,000 2,900,000 Common stock, $1 par value 90,000 110,000 Paid-in capital in excess of par 960,000 970,000 Retained earnings 3,330,000 2,640,000 The income before income tax was $1,044,000 and $913,500 for...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned The following data were taken from...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned 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 $628,000 $193,000 Current maturities of serial bonds payable 410,000 410,000 Serial bonds payable, 10% 1,710,000 2,120,000 Common stock, $1 par value 90,000 120,000 Paid-in capital in excess of par 1,010,000 1,010,000 Retained earnings 3,480,000 2,760,000 The income before income tax was $572,400 and $500,900 for...
Ratio of Liabilities to Stockholders' Equity and Number of Times Interest Earned The following data were...
Ratio of Liabilities to Stockholders' Equity and Number of Times Interest Earned 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 $982,000 $229,000 Current maturities of serial bonds payable 580,000 580,000 Serial bonds payable, 10% 2,310,000 2,890,000 Common stock, $1 par value 100,000 120,000 Paid-in capital in excess of par 1,060,000 1,070,000 Retained earnings 3,680,000 2,920,000 The income before income tax was $809,200 and...
Debt ratio, Ratio of Liabilities to Stockholders' Equity, and Times Interest Earned Camper Company and McSead,...
Debt ratio, Ratio of Liabilities to Stockholders' Equity, and Times Interest Earned Camper Company and McSead, Inc., are the two largest toy companies. Condensed liabilities and stockholders' equity from a recent balance sheet are shown for each company as follows: Camper McSead Current liabilities $1,477,000 $3,246,000 Long-term debt 795,800 1,906,000 Total liabilities $2,272,800 $5,152,000 Total stockholders' equity 3,788,000 6,440,000 Total liabilities and stockholders' equity $6,060,800 $11,592,000 The income from operations and interest expense from the income statement for both companies...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned Hasbro, Inc. and Mattel, Inc., are...
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned Hasbro, Inc. and Mattel, Inc., are the two largest toy companies in North America. Condensed liabilities and stockholders' equity from a recent balance sheet are shown for each company as follows (in thousands): Hasbro Mattel Liabilities:   Current liabilities $2,742,000 $4,818,000   Long-term debt 1,476,000 1,912,000   Other liabilities _ 918,000   Total liabilities $4,218,000 $7,648,000   Shareholders' equity:   Common stock $191,000 $860,000   Additional paid in capital 591,000 3,155,000   Retained earnings 3,675,000 3,251,000   Accumulated other...
a. For the years 2005–2009, calculate Boeing’s: i. Total liabilities-to-equity ratio ii. Times interest earned ratio...
a. For the years 2005–2009, calculate Boeing’s: i. Total liabilities-to-equity ratio ii. Times interest earned ratio iii. Times burden covered ratio b. What percentage decline in earnings before interest and taxes could Boeing have sustained in these years before failing to cover: i. Interest and principal repayment requirements? ii. Interest, principal, and common dividend payments? c. What do these calculations suggest about Boeing’s financial leverage during this period? I am aware that this question has been submitted and answered by...
Ratio of Liabilities to Stockholders' Equity and Ratio of Fixed Assets to Long-Term Liabilities Recent balance...
Ratio of Liabilities to Stockholders' Equity and Ratio of Fixed Assets to Long-Term Liabilities Recent balance sheet information for two companies in the food industry, Santa Fe Company and Madrid Company, is as follows (in thousands): Santa Fe Madrid Net property, plant, and equipment $634,720 $816,800 Current liabilities 257,307 599,208 Long-term debt 587,116 588,096 Other long-term liabilities 206,284 228,704 Stockholders' equity 256,270 321,820 a. Determine the ratio of liabilities to stockholders' equity for both companies. Round to one decimal place....
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT