Question

Calculate the times interest earned ratio using the financial statement data shown below. Current liabilities $185 Income before interest and taxes $170 10% Bonds, long-term 360 Interest expense 36 Total liabilities 545 Income before tax 134 Stockholders' equity Income tax 29 Common stock 222 Net income $105 Retained earnings 289 Total stockholders' equity 511 Total liabilities and equity $1,056HHF's times interest earned ratio is:______.a. 10.00.b. 3.14.c. 1.54.d. 2.14.Current liabilities $180 Income before interest and taxes $11810% Bonds, long-term 360 Interest expense 36Total liabilities 540 Income before tax 82Shareholders' equity Income tax 20Capital stock 201 Net income $62Retained earnings 283Total shareholders'equity 484Total liabilities and equity $1,024HHF's debt to equity ratio is:________.a. 0.74.b. 0.56.c. 1.12.d. 1.90.

Answer 1

Answer:

1. Times interest earned ratio is 4.72

2. Debt to equity ratio is 1.12. Option C

Explanation:

Current liabilities = $185

Income before interest and taxes = $170

10% Bonds, long-term = $360

Interest expense = $36

Total liabilities = $545

Income before tax = $134

Stockholders' equity Income tax = $29

Common stock = $222

Net income = $105

Retained earnings = $289

Total stockholders' equity = $511

Total liabilities and equity = $1,056

1. Times interest earned ratio = Earnings before interest and taxes/Interest expenses

= $170 ÷ $36

= 4.72

Current liabilities = $180

Income before interest and taxes = $118

10% Bonds, long-term = $360

Interest expense = $36

Total liabilities = $540

Income before tax = $82

Shareholders' equity Income tax = $20

Capital stock 201 Net income = $62

Retained earnings = $283

Total shareholders'equity = $484

Total liabilities and equity = $1,024

2. Debt to equity ratio = Total debt ÷ Total equity

= 540 ÷ 484

= 1.12