Question

eBook Calculator Ratio of abilities to Stockholders' Equity and Times Interest Eamed 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 $924,000 $800,000 Current maturities of serial bonds payable 200,000 200,000 Serial bonds payable, 10% 1,000,000 Common stock, $10 par value 250,000 250,000 Pald-in capital in excess of par 1,250,000 1,250,000 Retained earnings 860,000 500,000 The income before income tax was $480,000 and $420,000 for the current and previous years, respectively. 1,200,000 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 4.8 X Previous year 3.5 X C. The ratio of liabilities to stockholders' equity has improved and the times interest earned ratio has improved from the previous year. These results are the combined result of a larger income before income taxes and lower interest expense in the current year compared to the previous year.

Answer 1

1 b) 2 3 Current maturities of serial bonds payable 4 Serial bonds payable 5 Total 6 Interest expense@10% Current Year Previous Year $ 200,000 $ 200,000 $ 1,000,000 $ 1,200,000 $ 1,200,000 $ 1,400,000 $ 120,000 $ 140,000 9 Income before income tax 10 Interest expense 11 Income before interest and income tax $ $ $ 480,000 $ 120,000 $ 600,000 $ 420,000 140,000 560,000 13 Times interest earned ratio

1 b) 2 3 Current maturities of serial bonds payable 4 Serial bonds payable 5 Total 6 Interest expense@10% Current Year Previous Year 200000 200000 1000000 1200000 =+B3+B4 =+C3+C4 =+B5*10% =+C5*10% 7 9 Income before income tax 10 Interest expense 11 Income before interest and income tax 12 13 Times interest earned ratio 14 480000 =+B6 =+B9+B10 420000 =+C6 =+C9+C10 =+B11/B6 =+C11/C6