Use the following financial information for questions 2-4 below: From the income
ID: 2554055 • Letter: U
Question
Use the following financial information for questions 2-4 below:
From the income statement:
Depreciation expense
Interest expense
$112,000
25,000
Income tax
Net income
45,000
53,000
From the balance sheet:
Current liabilities
$80,000
Long-term debt
400,000
Deferred income taxes
15,000
Total Liabilities
$495,000
Preferred stock
75,000
Common stock
157,000
Premium on common stock
185,000
Retained earnings
245,000
Total Stockholders’ Equity
$662,000
Total Liabilities & Stockholders’ Equity
$1,157,000
2. What is the Times Interest Earned ratio? _________ /_______ = ___________
3. What is the Debt/Assets (Debt) ratio? ________________ /___________ = __________
4. What is the Debt/Equity ratio? ________________ /___________ = __________
Depreciation expense
Interest expense
$112,000
25,000
Income tax
Net income
45,000
53,000
Explanation / Answer
2) Time interest earned = Income before interest and income tax/Interest expense
= (53000+45000+25000)/25000
Time interest earned = 4.92 Times
3) Total debt/Total assets ratio = Total debt/Total assets
= 495000/1157000
Total debt /assets ratio = 0.43:1
4) Total debt/equity Ratio = Total liabilities/Total equity
= 495000/662000
Total debt/equity ratio = 0.75:1
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