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 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 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 times interest earned ratio 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 | |||||
| Current Year | Previous Year | ||||
| Accounts payable | 604000 | 290000 | |||
| Current maturities of serial bonds payable | 530000 | 530000 | |||
| Serial bonds payable, 10% | 2370000 | 2900000 | |||
| Total liabilities | 3504000 | 3720000 | |||
| Current Year | Previous Year | ||||
| Common stock, $1 par value | 90000 | 110000 | |||
| Paid-in capital in excess of par | 960000 | 970000 | |||
| Retained earnings | 3330000 | 2640000 | |||
| Total stockholders' equity | 4380000 | 3720000 | |||
| Ratio of liabilities to stockholders' equity: | |||||
| Current year | 0.8 | =3504000/4380000 | |||
| b | 1 | =3720000/3720000 | |||
| b | |||||
| Interest expense: | |||||
| Current year | 290000 | =(530000+2370000)*10% | |||
| Previous year | 343000 | =(530000+2900000)*10% | |||
| Times interest earned ratio : | |||||
| Current year | 4.6 | =(1044000+290000)/290000 | |||
| Previous year | 3.7 | =(913500+343000)/343000 | |||
| c | |||||
| 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. | |||||
ekkarill92 answered 1 year agoRelated Solutions
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned The following data were taken from...
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The following data were taken from the financial statements of
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were taken from the financial statements of Hunter Inc. for
December 31 of two recent years:
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Previous Year
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$198,000
Current maturities of serial bonds payable
460,000
460,000
Serial bonds payable, 10%
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Common stock, $1 par value
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110,000
Paid-in capital in excess of par
970,000
980,000
Retained earnings
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The following data were taken from the financial statements of
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Current Year
Previous Year
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$224,000
Current maturities of serial bonds payable
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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
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2,290,000
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Ratio of Liabilities to Stockholders' Equity and Times Interest
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The following data were taken from the financial statements of
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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
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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
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Current maturities of serial bonds payable
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Serial bonds payable, 10%
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Common stock, $1 par value
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