Ratio of Liabilities to Stockholders Equity and Number of Ti

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 $656,000 570,000 2,590,000 90,000 1,050,000 3,630,000 Previous Year $320,000 570,000 3,160,000 120,000 1,050,000 2,880,000 Accounts payable Current maturities of serial bonds payable Senai bonds payable, 10% Common stock, $1 par value Paid-in capital in excess of par Retained earnings The income before income tax was $853,200 and $746,600 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 c. The ratio of liabilities to stockholders\' equity has from the previous year. These results are the combined result of a in the current year compared to the previous year and the number of times bond interest charges were earned has income before income taxes and interest expense

Solution

a). Ratio of Liabilities to Stockholder\'s:-

b).

(($570000+$2590000)*10%)

=$316000

(($570000+$3160000)*10%)

=$373000

c. The Ratio of Liabilities to stockholder\'s equity has Improved and the number of times bond interest charges were

earned has Improved from the previous year. These results are the combined result of a Increase in income

before income tax and Reduction in Interest Expense in the current year compared to the Previous Year.

Liabilities and Shareholder\'s Equity	Current	Previous
Accounts Payable	$656000	$320000
Current Maturities of Serial Bonds Payable	$570000	$570000
Serial Bonds Payable, 10%	$2590000	$3160000
Total Liabilities (A)	$3816000	$4050000
Common Stock, $10 par	$90000	$120000
Paid in Capital in Excess of par	$1050000	$1050000
Retained Earning	$3630000	$2880000
Shareholder\'s Equity (B)	$4770000	$4050000
Ratio of Liabilities to Shareholder\'s Equity (A / B)	0.80	1.00