The following information was available for the year ended December 31, 2013: Ca

Question

The following information was available for the year ended December 31, 2013:

     

Calculate the debt/equity ratio at December 31, 2013. (Round your answer to 2 decimal places.)

     

Calculate the times interest earned for the year ended December 31, 2013. (Round your answer to 2 decimal places.)

Earnings before interest and taxes ( operating income) = $108,000 net incocme= $ 51,000 interest expense = $26,000 total assets at year-end = $ 360,000 income tax expense = $31,000 total liabilities = $184,0000

Explanation / Answer

(a) Debt ratio = Total liabilites / Total assets

= $184,000 / $360,000 = 0.5111, or 51.11%

(b) Debt-equity ratio = Total liabilities / Equity

Where

Equity = Total assets - Total liabilities = $(360,000 - 184,000) = $176,000

Debt-equity ratio = $184,000 / $176,000 = 1.05

(c) Times interest earned = EBIT / Interest expense

= $108,000 / $26,000

= 4.15

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