Galaxy United, Inc. 2009 Income Statement ($ in thousands) Net sales $5,760 Less

Question

Galaxy United, Inc. 2009 Income Statement ($ in thousands) Net sales $5,760 Less: Cost of goods sold 4,040 Less: Depreciation 430 Earnings before interest and taxes 1,290 Less: Interest paid 31 Taxable Income 1,259 Less: Taxes 441 Net income $ 818 Galaxy United, Inc. 2008 and 2009 Balance Sheets ($ in thousands) 2008 2009 2008 2009 Cash $ 70 $ 160 Accounts payable $1,340 $1,190 Accounts rec. 980 820 Long-term debt 710 520 Inventory 1,470 1,980 Common stock $3,130 $3,292 Total $2,520 $2,960 Retained earnings 920 1,238 Net fixed assets 3,580 3,280 Total assets $6,100 $6,240 Total liab. & equity $6,100 $6,240 What is the debt-equity ratio for 2009? .47 .23 .38 .45 .26

Explanation / Answer

Total Debt Equity Ratio = Long Term Debt + Accounts Payable Common Stock + Retained Earnings = 520+1190 3292+1238 = 0.38 Note 1. Answer is rounded off to the 2 decimal places. 2. Balance sheets can be reasonably assumed to be balance sheet at the year end. 3. Question has given net income for 2009 as $ 818, which can be reasonably assumed to be included in the closing balance of the retained earnings given in question for balance sheet of 2009.

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