Question

Ratios Analyzing Long-Term Firm Solvency

Answer 1

Answer:

0.57 and 9.24 times

Explanation:

The computation is shown below:

a. Debt to equity ratio

= Total Liabilities ÷ Share holders' equity

= $2,400,000 ÷ $4,200,000

= 0.57

And, the times interest earned ratio is

= EBIT ÷ interest expense

where,

EBIT is

= Net income + taxes + interest

= $496,500 + $203,500 + $85,000

= $785,000

And, the interest expense is $85,000

So, times interest earned ratio is

= $785,000  ÷ $85,000

= 9.24 times

We simply applied the above formulas

Plus the year is 2019 not 2016