At May 31, 2019, Acai Associates reported the following amounts (in millions) in its financial statements: 2018 $ 57,000 29,070 Total Assets Total Liabilities Interest Expense Income Tax Expense Net Income 2019 $ 59,000 32,450 642 125 620 590 230 4,846 Required: 1. Compute the debt-to-assets ratio and times interest earned ratio for 2019 and 2018. 2-a. In 2019, were creditors providing a greater (or lesser) proportion of financing for Acai's assets? 2-b. In 2019, was Acai more (or less) successful at covering its interest costs, as compared to 2018?

At May 31, 2019, Acai Associates reported the following amounts (in millions) in its financial statements: 2018 $ 57,000 29,070 Total Assets Total Liabilities Interest Expense Income Tax Expense Net Income 2019 $ 59,000 32,450 642 125 620 590 230 4,846 Required: 1. Compute the debt-to-assets ratio and times interest earned ratio for 2019 and 2018. 2-a. In 2019, were creditors providing a greater (or lesser) proportion of financing for Acai's assets? 2-b. In 2019, was Acai more (or less) successful at covering its interest costs, as compared to 2018?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

At May 31, 2019, Acai Associates reported the following amounts (in millions) in its financial statements:

| | 2019 | 2018 |
|-------------------|----------|----------|
| **Total Assets** | $59,000 | $57,000 |
| **Total Liabilities** | 32,450 | 29,970 |
| **Interest Expense** | 642 | 590 |
| **Income Tax Expense** | 125 | 230 |
| **Net Income** | 620 | 4,846 |

**Required:**

1. Compute the debt-to-assets ratio and times interest earned ratio for 2019 and 2018.

2-a. In 2019, were creditors providing a greater (or lesser) proportion of financing for Acai’s assets?

2-b. In 2019, was Acai more (or less) successful at covering its interest costs, as compared to 2018?

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Step 2: 1. Calculation of the debt to assets ratio and time interest earned ratio, as follows:

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Step 3: 2-a Analysis of debt to asset ratio:

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Step 4: 2-b Analysis of time interest earned ratio:

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