I only need part B, and could you show the work involved, thank you. The followi
ID: 2372384 • Letter: I
Question
I only need part B, and could you show the work involved, thank you.
The following data were taken from the financial statements of Weal Construction Inc. for December 31, 2012 and 2011:
The income before income tax was $222,500 and $206,400 for the years 2012 and 2011, respectively.
a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.
b. Determine the number of times the bond interest charges are earned during the year for both years. Round to one decimal place.
Dec. 31, 2012 Dec. 31, 2011 Accounts payable $112,000 $130,000 Current maturities of serial bonds payable 150,000 180,000 Serial bonds payable, 10%, issued 2005, due 2015 740,000 1,110,000 Common stock, $1 par value 70,000 80,000 Paid-in capital in excess of par 730,000 740,000 Retained earnings 2,540,000 2,020,000Explanation / Answer
You need to use the times interest earned ratio, which takes EBIT (earnings before interest and taxes) and divides by total interest payable.
First we need to determine EBIT for both years. Since the income was before tax, we can assume that interest was already expensed. So in 2009 interest would have been paid on
[1,110,000+180,000 (current and long term maturties of bonds payable)] *.10 = 1290,00
we take that and add it back to income
$206,400+1290,00=$335400
Now we can use the TIE formula
$335400/$1290,00 = 2.6
You can use the same system to come up with 2012