s to Equity and Number of Times Interest Earned The following data were taken fr
ID: 2329224 • Letter: S
Question
s to Equity and Number of Times Interest Earned The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years Accounts payable Current maturities of serial bonds payable Serial bonds payable, 10% Common stock, $1 par value Paid-in capital in excess of par Retained earnings The income before income tax was $810,600 and $709.300 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 $331,000 340,000 1.590,000 70,000 710,000 2,450,000 $205,000 340,000 1,930,000 80,000 720,000 1,950,000 year b. Determine the times interest earned ratio for both years, Round to one decimal place. Previous year c. The ratio of liabities to stockholide's taxes and lower V interest expense in the current year compared to the previous year equity has improved and the number of times bond interest charges were eExplanation / Answer
Answer a.
Current Year:
Total Liabilities = Accounts Payable + Current Maturities of Serial Bond Payable + Serial Bond Payable
Total Liabilities = $331,000 + $340,000 + $1,590,000
Total Liabilities = $2,261,000
Total Stockholders’ Equity = Common Stock + Paid-in Capital in Excess of Par + Retained Earnings
Total Stockholders’ Equity = $70,000 + $710,000 + $2,450,000
Total Stockholders’ Equity = $3,230,000
Ratio of Liabilities to Stockholders’ Equity = Total Liabilities / Total Stockholders’ Equity
Ratio of Liabilities to Stockholders’ Equity = $2,261,000 / $3,230,000
Ratio of Liabilities to Stockholders’ Equity = 0.70
Previous Year:
Total Liabilities = Accounts Payable + Current Maturities of Serial Bond Payable + Serial Bond Payable
Total Liabilities = $205,000 + $340,000 + $1,930,000
Total Liabilities = $2,475,000
Total Stockholders’ Equity = Common Stock + Paid-in Capital in Excess of Par + Retained Earnings
Total Stockholders’ Equity = $80,000 + $720,000 + $1,950,000
Total Stockholders’ Equity = $2,750,000
Ratio of Liabilities to Stockholders’ Equity = Total Liabilities / Total Stockholders’ Equity
Ratio of Liabilities to Stockholders’ Equity = $2,475,000 / $2,750,000
Ratio of Liabilities to Stockholders’ Equity = 0.90
Answer b.
Current Year:
Interest Expense = Interest Rate * (Current Maturities of Serial Bond Payable + Serial Bond Payable)
Interest Expense = 10% * ($331,000 + $340,000)
Interest Expense = $67,100
Times Interest Earned = Income before Income Tax / Interest Expense
Times Interest Earned = $810,600 / $67,100
Times Interest Earned = 12.1
Previous Year:
Interest Expense = Interest Rate * (Current Maturities of Serial Bond Payable + Serial Bond Payable)
Interest Expense = 10% * ($205,000 + $340,000)
Interest Expense = $54,500
Times Interest Earned = Income before Income Tax / Interest Expense
Times Interest Earned = $709,300 / $54,500
Times Interest Earned = 13.0
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