Question

Ratio of Liabilities to Stockholders' Equity and Number of 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	$204,000		$180,000
Current maturities of serial bonds payable	260,000		260,000
Serial bonds payable, 10%	1,300,000		1,560,000
Common stock, $1 par value	60,000		70,000
Paid-in capital in excess of par	650,000		650,000
Retained earnings	2,230,000		1,780,000

The income before income tax was $483,600 and $423,200 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

Profitability Ratios

The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:

		December 31
		20Y7		20Y6		20Y5
Total assets		$220,000		$198,000		$176,000
Notes payable (8% interest)		70,000		70,000		70,000
Common stock		28,000		28,000		28,000
Preferred 5% stock, $100 par		14,000		14,000		14,000
	(no change during year)
Retained earnings		76,430		54,870		42,000

The 20Y7 net income was $22,260, and the 20Y6 net income was $13,570. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7.

a. Determine the return on total assets, the rate earned on stockholders' equity, and the return on common stockholders’ equity for the years 20Y6 and 20Y7. When required, round to one decimal place.

	20Y7		20Y6
Return on total assets		%		%
Return on stockholders’ equity		%		%
Return on common stockholders’ equity		%		%

Answer 1

Solution Return on total Assets = Net in come Avarage total Assets x 100 For 2017 For 2016 $ 22260 920000 + 198000 X200 уро $ 13570 198000 + 176000 -) 10.65.1. (Approx.) 7.261. Capprox.)

Return on Stock holders eauity : Stock holders eauity - common stock & Retained & prefered Stock earnings Retus on stockholders eauity * 100 Net income Average stock holders eauity for 2017 $ 22260 C28000+ 1400ot 76430) + (2rooo +140out 54870) - 20684. approx for 2016 $ 13570 X100 (28000 + 14000f 5 4870) + (drooo tuouot 4200 15 % TTTTTTIIN

Retown Canity! on common Stock holders X 100 Net income Avarage common stock holdes eauity Common stok holders eauity a common stock I et fetalned earnings For 2017 $ 22260 ХООО 28000 + 764307 & 128000f 54870.1 23. 777

For 2016 $ 13570 C 28000+ 54870 ) & (2800ot 42000) 8100 17.75 epi