MA-16. Long-Term Solvency Ratios Summary data from year-end financial statements
ID: 2590608 • Letter: M
Question
MA-16. Long-Term Solvency Ratios Summary data from year-end financial statements of Palm Springs Company for 2017 follow. Summary Income Statement Data Sales $11,692,900 Cost of goods sold 5,135,000 Selling expenses 938,000 Administrative expenses 780,000 Interest expense 2,210,000 Income tax expense 905,000 9,968,000 Net income $1,724,900 Summary Balance Sheet Data Cash $117,000 Total liabilities $900,000 Noncash assets 1,183,000 Stockholders' equity 400,000 Total assets $1,300,000 Total liabilities and equity $1,300,000 Round answers to two decimal places. a. Compute the ratio of times-interest-earned. Answer times b. Compute the debt-to-equity ratio. Answer
Explanation / Answer
a. Times interest earned = Income from Operations / Interest Expense = $ 4,839,900 / $ 2,210,000 = 2.19 times
b. Debt-to-equity ratio = Total Liabilities / Total Stockholders' Equity = $ 900,000 / $ 400,000 = 2.25 times or 225 %
Palm Springs Company
Income Statement
Sales $ 11,692,900 Cost of Goods Sold 5,135,000 Gross Profit 6,557,900 Selling and Administrative Expenses 1,718,000 Income from Operations 4,839,900 Interest Expense 2,210,000 Earnings before Taxes 2,629,900 Income Tax Expense 905,000 Net Income 1,724,900Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.