Answered: a. Determine the ratio of liabilities…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 13E: Ratio of liabilities to stockholders equity and times interest earned The following data were taken...

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Ratio of Liabilities to Stockholders' Equity and Times Interest Earned

The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:

	Current Year	Previous Year
Accounts payable	$697,000		$182,000
Current maturities of serial bonds payable	430,000		430,000
Serial bonds payable, 10%	1,750,000		2,180,000
Common stock, $1 par value	90,000		100,000
Paid-in capital in excess of par	900,000		910,000
Retained earnings	3,120,000		2,480,000

The income before income tax was $610,400 and $534,100 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
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 and the times interest earned ratio has from the previous year. These results are the combined result of a income before income taxes and interest expense in the current year compared to the previous year.

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