Question

Ratio of Liabilities to Stockholders' Equity and Number of Times Interest Charges Earned The following data were taken from the financial statements of Weal Construction, Inc. for December 31, 2016 and 20Y5: Dec. 31, 2016 Accounts payable and other liabilities $146,000 Current maturities of bonds payable 190,000 Dec. 31, 2045 $128,000 190,000 1,150,000 110,000 Serial bonds payable, 10%, issued 2008, due in five years 960,000 Common stock, $5 par value 170,000 Paid-in capital in excess of par 950,000 1,300,000 2,850,000 Retained earnings 2,610,000 The income before income tax was $322,000 and $268,000 for the years 2016 and 20Y5, respectively. The portion of the 10% serial bonds that come due in the following year are listed in the table above as current maturities; the remaining bonds are reported as serial bonds payable. a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place. Dec. 31, 2016 Dec. 31, 2045 b. Determine the number of times the bond interest charges are earned during the year for both years. Round to one decimal place. Dec. 31, 2016 Dec. 31, 2015 c. What conclusions can be drawn from these data as to the company's ability to meet its currently maturing debts? Select The company's ability to meet its currently maturing debts has improved during 20Y6. The company's ability to meet its currently maturing debts has worsened during 2016. No conclusion can be drawn from these data. Check My Work (3 remaining)

Answer 1

* Rato of liabiliter ORCHO of liabilities to stockholder's EQUIHU Dec.31 2016 Dec 31 2015 0.40 > TOTOY liabilities - Equity TOTO stck holder's 196000 + 190,000+ 960,000). [1 0000 +13,00,000+ 28,50,000 $ 12,96000 : $ 43,20,000 2015: (5128000 + 190,000 + 1150,000] : [110,000 t 950,000 † 26.10,000 $14.68000 36 70,000 - 10.41 (6) No. of times bond interest charges are eamed bec. 31 2006 3.8 times bea 312045 13 times → Times Int. eamed Ratio = - EBT + Interest Int Expense 20y6: $ 322000 + 1,15000): 1,15000 = 3.8 times 2015 $268000 + 134000) = 134000 - 3 timer

Interest Expense 2016 (190,000 + 960,000) X 10% = 51,15000 2015 C 190000 + 1,50,000J X 10% = $1,34000