The income before income tax was $364,800 and $320,500 for the current and previ

Question

The income before income tax was $364,800 and $320,500 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.

b. Determine the number of times the bond interest charges are earned during the year for both years. Round to one decimal place.

Accounts payable $350,000 $297,500 Current maturities of serial bonds payable 240,000 280,000 Serial bonds payable, 10%, issued 2009, due 2019 1,150,000 1,310,000 Common stock, $1 par value 80,000 100,000 Paid-in capital in excess of par 780,000 780,000 Retained earnings 2,660,000 2,400,000

Explanation / Answer

a. Ratio of liabilities to stockholders' equity = Total Liabilities / Shareholders' Equity

b. Divide the income by the total interest paid to calculate the times.

Current year 1,740,000/3,520,000 49.4% Previous year 1,887,500/3,280,000 57.5%

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