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Ratio of Liabilities to Stockholders' Equity and Times Interest Earned The following data were taken from the...

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Accounting

Ratio of Liabilities to Stockholders' Equity and Times InterestEarned

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

Current YearPrevious Year
Accounts payable$628,000$193,000
Current maturities of serial bonds payable410,000410,000
Serial bonds payable, 10%1,710,0002,120,000
Common stock, $1 par value90,000120,000
Paid-in capital in excess of par1,010,0001,010,000
Retained earnings3,480,0002,760,000

The income before income tax was $572,400 and $500,900 for thecurrent and previous years, respectively.

a. Determine the ratio of liabilities tostockholders' equity at the end of each year. Round to one decimalplace.

Current year
Previous year

b. Determine the times interest earned ratiofor both years. Round to one decimal place.

Current year
Previous year

Answer & Explanation Solved by verified expert
3.7 Ratings (629 Votes)

a
Current year 0.6
Previous year 0.7
b
Current year 3.7
Previous year 3.0
Workings:
Current year Previous year
Accounts payable 628000 193000
Current maturities of serial bonds payable 410000 410000
Serial bonds payable, 10% 1710000 2120000
Total liabilities 2748000 2723000
Current year Previous year
Common stock, $1 par value 90000 120000
Paid-in capital in excess of par 1010000 1010000
Retained earnings 3480000 2760000
Total stockholders' equity 4580000 3890000
Current year Previous year
Total liabilities 2748000 2723000
Divide by Total stockholders' equity 4580000 3890000
Ratio of liabilities to stockholders' equity 0.6 0.7
Current year Previous year
Income before income tax 572400 500900
Add: Interest expense 212000 253000
Income before interest and income tax 784400 753900
Divide by Interest expense 212000 253000
Times interest earned ratio 3.7 3.0

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