RST Corporation Comparative Income Statements for the Years 5 and 6 Year 6 Year 5 Sales (all are credit) $285,000 $200,000 Cost of goods sold 150,000 120,000 Gross profit $135,000 $ 80,000 Selling and administrative expenses 65,000 36,000 Income before interest and income taxes $ 70,000 $ 44,000 Interest expense 3,000 3,000 Income before income taxes $ 67,000 $ 41,000 Income tax expense 27,000 16,000 Net income $ 40,000 $ 25,000 RST Corporation Comparative Balance Sheets End of Years 5 and 6 Assets Year 6 Year 5 Current assets: Cash $ 5,000 $ 4,000 Short-term marketable investments 3,000 2,000 Accounts receivable (net) 16,000 14,000 Inventory 30,000 20,000 Total current assets $ 54,000 $ 40,000 Noncurrent assets: Long-term investments 11,000 11,000 Property, plant, and equipment 80,000 70,000 Intangibles 3,000 4,000 Total assets $148,000 $125,000 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 11,000 $ 7,000 Accrued payables 1,000 1,000 Total current liabilities $ 12,000 $ 8,000 Long-term Liabilities: 0% Bonds payable, due in Year 12 30,000 30,000 Total liabilities $ 42,000 $ 38,000 Stockholders’ equity: Common stock, 2,400 shares, $10 par $ 24,000 $ 24,000 Retained earnings 82,000 63,000 Total stockholders’ equity $106,000 $ 87,000 Total liabilities and stockholders’ equity $148,000 $125,000 The market value of RST’s common stock at the end of Year 6 was $100.00 per share. Question RST’s times interest earned ratio at the end of Year 6 is A.14.67 times. B.13.33 times. C.14.33 times. D.23.33 times.

RST Corporation Comparative Income Statements for the Years 5 and 6 Year 6 Year 5 Sales (all are credit) $285,000 $200,000 Cost of goods sold 150,000 120,000 Gross profit $135,000 $ 80,000 Selling and administrative expenses 65,000 36,000 Income before interest and income taxes $ 70,000 $ 44,000 Interest expense 3,000 3,000 Income before income taxes $ 67,000 $ 41,000 Income tax expense 27,000 16,000 Net income $ 40,000 $ 25,000 RST Corporation Comparative Balance Sheets End of Years 5 and 6 Assets Year 6 Year 5 Current assets: Cash $ 5,000 $ 4,000 Short-term marketable investments 3,000 2,000 Accounts receivable (net) 16,000 14,000 Inventory 30,000 20,000 Total current assets $ 54,000 $ 40,000 Noncurrent assets: Long-term investments 11,000 11,000 Property, plant, and equipment 80,000 70,000 Intangibles 3,000 4,000 Total assets $148,000 $125,000 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 11,000 $ 7,000 Accrued payables 1,000 1,000 Total current liabilities $ 12,000 $ 8,000 Long-term Liabilities: 0% Bonds payable, due in Year 12 30,000 30,000 Total liabilities $ 42,000 $ 38,000 Stockholders’ equity: Common stock, 2,400 shares, $10 par $ 24,000 $ 24,000 Retained earnings 82,000 63,000 Total stockholders’ equity $106,000 $ 87,000 Total liabilities and stockholders’ equity $148,000 $125,000 The market value of RST’s common stock at the end of Year 6 was $100.00 per share. Question RST’s times interest earned ratio at the end of Year 6 is A.14.67 times. B.13.33 times. C.14.33 times. D.23.33 times.

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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Question

Fact Pattern:

RST Corporation Comparative Income

Statements for the Years 5 and 6

Year 6

Year 5

Sales (all are credit)

$285,000

$200,000

Cost of goods sold

150,000

120,000

Gross profit

$135,000

$ 80,000

Selling and administrative expenses

65,000

36,000

Income before interest and income taxes

$ 70,000

$ 44,000

Interest expense

3,000

Income before income taxes

$ 67,000

$ 41,000

Income tax expense

27,000

16,000

Net income

$ 40,000

$ 25,000

RST Corporation

Comparative Balance Sheets

End of Years 5 and 6

Assets

Year 6

Year 5

Current assets:

Cash

$ 5,000

$ 4,000

Short-term marketable investments

3,000

2,000

Accounts receivable (net)

16,000

14,000

Inventory

30,000

20,000

Total current assets

$ 54,000

$ 40,000

Noncurrent assets:

Long-term investments

11,000

Property, plant, and equipment

80,000

70,000

Intangibles

3,000

4,000

Total assets

$148,000

$125,000

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$ 11,000

$ 7,000

Accrued payables

1,000

Total current liabilities

$ 12,000

$ 8,000

Long-term Liabilities:

0% Bonds payable, due in Year 12

30,000

Total liabilities

$ 42,000

$ 38,000

Stockholders’ equity:

Common stock, 2,400 shares, $10 par

$ 24,000

Retained earnings

82,000

63,000

Total stockholders’ equity

$106,000

$ 87,000

Total liabilities and stockholders’ equity

$148,000

$125,000

The market value of RST’s common stock at the end of Year 6 was $100.00 per share.

Question

RST’s times interest earned ratio at the end of Year 6 is

A.14.67 times.
B.13.33 times.
C.14.33 times.
D.23.33 times.

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