Calculator Print Item Ratio of Liabilities to Stockholders\' Equity and Times In

ID: 2510863 • Letter: C

Question

Calculator Print Item Ratio of Liabilities to Stockholders' Equity and Times Interest Eaned 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, 1096 Common stock, $1 par value Paid-in capital in excess of par Retained earnings The income before income tax was $503,200 and $440,300 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 $385,000 280,000 1,200,000 80,000 820,000 2,830,000 Previous Year $142,000 280,000 1,480,000 100,000 820,000 2,250,000 Current year 0.5 0.6 v Previous year b. Determine the times interest earned ratio for both years. Round to one decimal place. Current year Previous year c. The ratio of liabilities to stockholders' equity has deterlorated x and the times interest earned ratio has improved V from the 5.2 X previous year. These results are the combined result of a larger income before income taxes and larger X interest expense in the current year compared to the previous year

Explanation / Answer

Answer

Working

Current Year

Previous Year

Serial Bonds payable 10%

1200000

1480000

Current maturities of serial bond payable

280000

B=(A1+A2) x 10%

Interest expenses on above

$148000

$176000

Income before income tax

503200

440300

D=B+C

Income before interest and income tax

$651200

$616300

E=D/B

Times Interest earned ratio

4.4

3.5

The ratio of liabilities to SE has IMPROVED and the times interest earned ration has IMPROVED from the previous year. These results are combined result of a LARGER income before income taxes and SMALLER interest expense for the current year compared to the previous year.