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: Accounts payable Current maturities of serial bonds payable Serial bonds payable, 1090 Common stock, $1 par value Paid-in capital in excess of par Retained earnings The income before income tax was $602,000 and $526,800 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 $352,000 310,000 1,410,000 50,000 570,000 1,970,000 Previous Year $170,000 310,000 1,720,000 70,000 570,000 1,560,000 Current year Previous year b. Determine the times interest earned ratio for both years. Round to one decimal place. Current year Previous year

Solution

a. liabilities to stockholders\' equity: = total liabilities / total stock holders equity.

b.times interest earned = income before tax and interest / interest on serial bonds.

C..The ratio of liabilities to stockholder\'s equity has DECREASED and the number of times bond interest charges were earned has INCREASED from the previous year. These results are the combined result of a INCREASE in income before income taxes and DECREASE in interest expense in the current year compared to previous year.

	current year	previous year
total liabilities (accounts payable+current maturities+serial bonds)	2,072,000	2,200,000
total equity	2,590,000	2,200,000
liabilities to equity ratio	0.8	1.0