Ratio of Liabilities to Stockholders\' Equity and Times Interest Earned The foll

Question

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:

The income before income tax was $529,200 and $463,100 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.

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

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.

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

Explanation / Answer

2442000/4070000

.60

2422000/3460000

.70

[529200+189000/]/189000

3.8

[463100+226000]/226000

3

**serial bond outstanding at beginning of previous year= Outstanding at end (non current)

       = (1890000+370000)

       = 2260000

Interest = 2260000*10%= 226000

****Interest for current year = 1890000*10%=189000

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 Higher income before income taxes and lower interest expense in the current year compared to the previous year.

current year previous year Total liabilities 552000+370000+1520000=2442000 162000+370000+1890000=2422000 Total equity 80000+900000+3090000=4070000 100000+900000+2460000=3460000 a)ratio of liabilities to stockholders' equity Total liabilities /total equity

2442000/4070000

.60

2422000/3460000

.70

b)times interest earned ratio (Income before tax+interest)/Interest

[529200+189000/]/189000

3.8

[463100+226000]/226000

3

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