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Ratio of liabilities to stockholders’ equity and times interest earned The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years: The income before income tax expense was $480,000 and $420,000 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. B. Determine the times interest earned ratio for both years. Round to one decimal place. C. What conclusions can be drawn from these data as to the company’s ability to meet its currently maturing debts?

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 14, Problem 13E
Textbook Problem
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Ratio of liabilities to stockholders’ equity and times interest earned

The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:

Chapter 14, Problem 13E, Ratio of liabilities to stockholders equity and times interest earned The following data were taken

The income before income tax expense was $480,000 and $420,000 for the current and previous years, respectively.

  1. A. Determine the ratio of liabilities to stockholders’ equity at the end of each year. Round to one decimal place.
  2. B. Determine the times interest earned ratio for both years. Round to one decimal place.
  3. C. What conclusions can be drawn from these data as to the company’s ability to meet its currently maturing debts?

A.

To determine

Compute ratio of liabilities to stockholders’ equity. 

Explanation of Solution

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

Compute ratio of liabilities to stockholders’ equity for current year. 

 Ratio of liabilities to stockholders' equity}=Total liabilitiesStockholders' equity=$2,124,000$2,360,000=9.0

Compute ratio of liabilities to stockholders’ equity for current year

B.

To determine

Compute times interest earned ratio.

C.

To determine

Provide conclusion about company’s ability to meet its currently maturing debt.

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