Question
In: Accounting
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 were as follows:
| Camper | McSead | |||
| Income from operations before tax | $513,345.6 | $1,485,210 | ||
| Interest expense | 43,200 | 159,700 | ||
a. Determine the debt ratio for both companies. Round to one decimal place.
| Camper | % |
| McSead | % |
b. Determine the ratio of liabilities to stockholders' equity for both companies. Enter your answers as decimal values rounded to one decimal place.
| Camper | |
| McSead |
c. Determine the number of times interest charges are earned for both companies. Round to one decimal place.
| Camper | |
| McSead |
d. What conclusions can be drawn from these
data as to the ability of these two companies to meet their
interest obligations?
Solutions
Expert Solution
Solution:-
a. Determine the debt ratio for both companies. Round to one decimal place:-
| Camper |
= [ $1,477,000 + 795,800 ] / [ $6,060,800 ] = 2,272,800 / 6,606,800 = 0.340 = 34% |
| McSead |
= [ $3,246,000 + 1,906,000 ] / [ $11,592,000 ] = 5,152,000 / 11,592,000 = 0.44 = 44% |
b. Determine the ratio of liabilities to stockholders' equity for both companies. Enter your answers as decimal values rounded to one decimal place. :-
| Camper |
= [ $1,477,000 + 795,800 ] / 3,788,000 = 2,272,800 / 3,788,000 = 0.6 |
| McSead |
= [ $3,246,000 + 1,906,000 ] / 6,440,000 = 5,152,000 / 6,440,000 = 0.8 |
c. Determine the number of times interest charges are earned for both companies. Round to one decimal place.
| Camper |
= [ $513,345.6 + 43,200 ] / 43,200 = 556,545.6 / 43,200 = 12.88 = 13 |
| McSead |
= [ $1,485,210 + 159,700 ] / 159,700 = 1,644,910 / 159,700 = 10.3 |
d. What conclusions can be drawn from these data as to the ability of these two companies to meet their interest obligations?
- Acquiring seem all that could possibly be needed for the two organizations to make their required intrigue installments.
ekkarill92 answered 2 years agoRelated Solutions
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