Question

Required information [The following information applies to the questions displayed below.] Simon Company's year-end balance sheets follow. 1 Yr Ago 2 Yrs Ago At December 31 Current Yr Assets $ 30, 149 87, 380 113, 193 9,709 275, 723 $ 36,665 $ 63,540 80,671 9,064 255,020 $ 444,960 $ 370, 800 37,443 48,946 51,601 Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net 4, 201 228, 609 Total assets $516, 154 Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings $ 76,702 $ 47,967 $131,093 80, 308 162, 500 80,025 $ 370,800 99,948 162, 500 122,613 $516,154 104, 388 162, 500 101, 370 $ 444, 960 Total liabilities and equity The company's income statements for the Current Year and 1 Year Ago, follow.

Answer 1

Ans.		Current Yr		1 Yr Ago
	Accounts payable	$131,093		$76,702
	Long term notes payable	$99,948		$104,388
	Total debt	$231,041		$181,090
	Common stock	$162,500		$162,500
	Retained earnings	$122,613		$101,370
	Total equity	$285,113		$263,870
Ans. 1	Debt ratio
		Total debt	/	Total assets	=    Debt ratio
	Current year	$231,041	/	$516,154	44.76%
	1 Yr ago	$181,090	/	$444,960	40.70%
	Equity ratio
		Total Equity	/	Total assets	=    Equity ratio
	Current year	$285,113	/	$516,154	55.24%
	1 Yr ago	$263,870	/	$444,960	59.30%
Ans. 2	Debt to Equity ratio
		Total debt	/	Total Equity	=   Debt to Equity ratio
	Current year	$231,041	/	$285,113	0.81 to 1
	1 Yr ago	$181,090	/	$263,870	0.69 to 1
Ans. 3 a	Time Interest Earned
		Income before interest & tax	/	Interest expenses	=   Time Interest Earned
	Current year	$53,680	/	$11,407	4.71 times
	1 Yr ago	$51,362	/	$12,179	4.22 times
	*Calculation of income before interest and taxes:
		Current Yr		1 Yr Ago
	Net sales	$671,000		$529,502
	Cost of goods sold	($409,310)		($344,176)
	Other operating expenses	($208,010)		($133,964)
	Income before interest & tax	$53,680		$51,362
Ans. 3 b	Based on time interest earned the company is less risky in current year because of higher time interest earned ratio.
	In terms of solvency, the company presents less risk to creditors.