QUESTION 10 Information from Nue Company\'s financial statements is provided bel
ID: 2340773 • Letter: Q
Question
QUESTION 10
Information from Nue Company's financial statements is provided below.
2013
2012
Current liabilities
$250 000
$170 000
Non-current liabilities
130 000
340 000
Shareholders' equity
440 000
560 000
Net cash flows from operating activities
70 000
61 000
Interest and principal payments
14 000
9 000
Net sales
475 000
450 000
Total comprehensive income
90 000
72 000
Interest expense
7 500
13 500
Income tax
18 000
12 500
Dividends paid to ordinary shareholders
16 000
28 000
The times interest earned ratio:
decreased, which indicates that the company has less cash to pay interest on its debt
increased, meaning the company's creditors will be pleased
indicates a decline in the company's ability to pay its liabilities when they come due
indicates that the company cannot meet its current year interest payments out of current year earnings
2013
2012
Current liabilities
$250 000
$170 000
Non-current liabilities
130 000
340 000
Shareholders' equity
440 000
560 000
Net cash flows from operating activities
70 000
61 000
Interest and principal payments
14 000
9 000
Net sales
475 000
450 000
Total comprehensive income
90 000
72 000
Interest expense
7 500
13 500
Income tax
18 000
12 500
Dividends paid to ordinary shareholders
16 000
28 000
Explanation / Answer
Times interest earned ratio = (Net income+Interest expense+Income tax)/Interest expense 2013 15.4 =(90000+7500+18000)/7500 2012 7.2 =(72000+13500+12000)/13500 Option B increased, meaning the company's creditors will be pleased is correct
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