Continuing Company Analysis–Amazon: Times interest earned Amazon.com, Inc. is one of the largest Internet retailers in the world. Walmart Stores, Inc. is the largest retailer in the United States. Amazon and Walmart compete in similar markets; however, Walmart sells through both traditional retail stores and the Internet, while Amazon sells only through the Internet. Interest expense and income before income tax expense from the financial statements of both companies for two recent years follow (in millions): Amazon Walmart Year 2 Year 1 Year 2 Year 1 Interest expense $ 210 $141 $ 2/461 $ 2,335 Income (loss) before income tax expense (111) 274 24,799 24,656 A. Compute the times interest earned ratio for both companies for the two years. (Round to one decimal place.) B. Interpret Amazon’s interest coverage from Year 1 to Year 2. C. Does a times interest earned ratio less than 1.0 mean that creditors will not get paid interest? D. Interpret Walmart’s interest coverage from Year 1 to Year 2. E. Which company appears to have the greater protection for creditors?

BuyFind

Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535
BuyFind

Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535

Solutions

Chapter
Section
Chapter 11, Problem 11.1ADM
Textbook Problem

Continuing Company Analysis–Amazon: Times interest earned

Amazon.com, Inc. is one of the largest Internet retailers in the world. Walmart Stores, Inc. is the largest retailer in the United States. Amazon and Walmart compete in similar markets; however, Walmart sells through both traditional retail stores and the Internet, while Amazon sells only through the Internet. Interest expense and income before income tax expense from the financial statements of both companies for two recent years follow (in millions):

Amazon Walmart
Year 2 Year 1 Year 2 Year 1
Interest expense $ 210 $141 $ 2/461 $ 2,335
Income (loss) before income tax expense (111) 274 24,799 24,656

A. Compute the times interest earned ratio for both companies for the two years. (Round to one decimal place.)

B. Interpret Amazon’s interest coverage from Year 1 to Year 2.

C. Does a times interest earned ratio less than 1.0 mean that creditors will not get paid interest?

D. Interpret Walmart’s interest coverage from Year 1 to Year 2.

E. Which company appears to have the greater protection for creditors?

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Chapter 11 Solutions

Corporate Financial Accounting
Ch. 11 - Issuing bonds at a discount On the first day of...Ch. 11 - Discount amortization Using the bond from Basic...Ch. 11 - Issuing bonds at a premium On the first day of the...Ch. 11 - Premium amortization Using the bond from Basic...Ch. 11 - Redemption of bonds payable A 500,000 bond issue...Ch. 11 - Bond price United States Steel Corporations 7.5%...Ch. 11 - Entries for issuing bonds Thomson Co. produces and...Ch. 11 - Entries for issuing bonds and amortizing discount...Ch. 11 - Entries for issuing bonds and amortizing premium...Ch. 11 - Entries for issuing and calling bonds; loss Hoover...Ch. 11 - Entries for issuing and calling bonds; gain Mia...Ch. 11 - Reporting bonds At the beginning of the current...Ch. 11 - Present value of amounts due Assume that you are...Ch. 11 - Present value of an annuity Determine the present...Ch. 11 - Present value of an annuity On January 1 you win...Ch. 11 - Present value of an annuity Assume the same data...Ch. 11 - Present value of bonds payable; discount Pinder...Ch. 11 - Present value of bonds payable; premium Moss Co....Ch. 11 - Amortize discount by interest method On the first...Ch. 11 - Amortize premium by interest method Shunda...Ch. 11 - Compute bond proceeds, amortizing premium by...Ch. 11 - Compute bond proceeds, amortizing discount by...Ch. 11 - Bond discount, entries for bonds payable...Ch. 11 - Bond premium, entries for bonds payable...Ch. 11 - Entries for bonds payable, including bond...Ch. 11 - Bond discount, entries for bonds payable...Ch. 11 - Bond premium, entries for bonds payable...Ch. 11 - Bond discount, entries for bonds payable...Ch. 11 - Bond premium, entries for bonds payable...Ch. 11 - Entries for bonds payable, including bond...Ch. 11 - Bond discount, entries for bonds payable...Ch. 11 - Bond premium, entries for bonds payable...Ch. 11 - Continuing Company AnalysisAmazon: Times interest...Ch. 11 - Arch Coal:Times interest earned Arch Coal, Inc. is...Ch. 11 - Aeropostale: Times interest earned Aeropostale,...Ch. 11 - Hilton and Marriott: Times interest earned Hilton...Ch. 11 - Ethics in Action CLG Capital Inc. is a large...Ch. 11 - Communication Nordbock Inc. reports the following...

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