At April 30, 2013, H. J. Klehr Incorporated reported the following amounts (in m

ID: 2574632 • Letter: A

Question

At April 30, 2013, H. J. Klehr Incorporated reported the following amounts (in millions) in its financial statements 2013 2012 Total Assets Total Liabilities Interest Expense Income Tax Expense Net Income $13,250 10,335 170 160 1,030 $11,850 9.006 170 195 910 Required 1. Compute the debt-to-assets ratio and times interest earned ratio for 2013 and 2012. (Round your answers to 2 decimal places.) 2013 2012 Times Interest Eaned Ratio 2. Creditors were providing a greater (or lesser) proportion of financing for Klehr Incorporated assets? Greater Lesser 2b. Klehr Incorporated was more (or less) successful at covering its interest costs, as compared to 2012? More Less

Explanation / Answer

Part 1 --

2013

2012

Debt to Asset (Total Liabilities / Total Assets)

0.78

0.76

(2013 = 10,335 / 13,250)

(2012 = 9006 / 11850)

Times Interest Earned Ratio (Income Before Interest and Taxes / Interest Expense)

Income before interest and taxes (Net Income + Tax Expense + Interest Expense) (A)

$1,360

1275

Interest Expense (B)

$170

170

Times Interest Earned Ratio (A/B)

8.00

7.50

Part 2-a

Debt to Asset ratio for 2013 is higher than 2012. It means creditor or liabilities are providing greater proportion of financing, Hence the correct option is GREATER.

Part 2-b

Times Interest Earned Ratio measures the proportionate amount of income that can be used to cover interest expenses in the future. In other words, this ratio measures firms ability to make interest and debt service payment.

This ratio indicates how many times a company could pay the interest with its before tax income.

2013 Times Interest Earned Ratio is higher than 2012, it means in 2013 company can pay 8 times interest incomparision to 2013.

Hence, the correct option is MORE