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Shown are data from recent reports of two toy makers. Dollar amounts are stated in thousands. Toyco $ 615, 132 349,792 Pemco $2,780,500 1,105,735 28,026 13,028 Total assets Total liabilities Interest expense Operating income 39,588 304,672 a-1. Compute debt ratio for each company. a-2. Compute interest coverage ratio for each company. b. In your opinion, which of these companies would a long-term creditor probably view as the safer investment?

Shown are data from recent reports of two toy makers. Dollar amounts are stated in thousands. Toyco $ 615, 132 349,792 Pemco $2,780,500 1,105,735 28,026 13,028 Total assets Total liabilities Interest expense Operating income 39,588 304,672 a-1. Compute debt ratio for each company. a-2. Compute interest coverage ratio for each company. b. In your opinion, which of these companies would a long-term creditor probably view as the safer investment?

FINANCIAL ACCOUNTING
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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Shown are data from recent reports of two toy makers. Dollar amounts are stated in thousands. Toyco $ 615,132 349,792 Pemco $2,780,500 1,105,735 Total assets Total liabilities. Interest expense Operating income a-1. Compute debt ratio for each company. a-2. Compute interest coverage ratio for each company. b. In your opinion, which of these companies would a long-term creditor probably view as the safer investment? Reg A1 Complete this question by entering your answers in the tabs below. Req A2 Toyco Pemco 28,026 13,028 39,588 304,672 Req B times times Compute Interest coverage ratio for each company. (Round your answers to 2 decimal places.) Interest Coverage Ratio
Transcribed Image Text:Shown are data from recent reports of two toy makers. Dollar amounts are stated in thousands. Toyco $ 615,132 349,792 Pemco $2,780,500 1,105,735 Total assets Total liabilities. Interest expense Operating income a-1. Compute debt ratio for each company. a-2. Compute interest coverage ratio for each company. b. In your opinion, which of these companies would a long-term creditor probably view as the safer investment? Reg A1 Complete this question by entering your answers in the tabs below. Req A2 Toyco Pemco 28,026 13,028 39,588 304,672 Req B times times Compute Interest coverage ratio for each company. (Round your answers to 2 decimal places.) Interest Coverage Ratio
Check my work Mellilo Corporation issued $6.0 million of 20-year, 9.5 percent bonds on July 1, 2021, at 98. Interest is due on June 30 and December 31 of each year, and all of the bonds in the issue mature on June 30, 2041. Mellilo's fiscal year ends on December 31. Prepare the following journal entries. a. July 1, 2021, to record the issuance of the bonds. b. December 31, 2021, to pay interest and amortize the bond discount. c. June 30, 2041, to pay interest, amortize the bond discount, and retire the bonds at maturity (make two separate entries). d. What is the effect of amortizing the bond discount upon (1) annual net income and (2) annual net cash flow from operating activities. (Ignore possible income tax effects.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars not in millions.) Complete this question by entering your answers in the tabs below. Req D a. July 1, 2021, to record the issuance of the bonds. b. December 31, 2021, to pay interest and amortize the bond discount. c. June 30, 2041, to pay interest, amortize the bond discount, and retire the bonds at maturity (make two separate entries). Req A to C View transaction list Journal entry worksheet 3 < 1 2 4
Transcribed Image Text:Check my work Mellilo Corporation issued $6.0 million of 20-year, 9.5 percent bonds on July 1, 2021, at 98. Interest is due on June 30 and December 31 of each year, and all of the bonds in the issue mature on June 30, 2041. Mellilo's fiscal year ends on December 31. Prepare the following journal entries. a. July 1, 2021, to record the issuance of the bonds. b. December 31, 2021, to pay interest and amortize the bond discount. c. June 30, 2041, to pay interest, amortize the bond discount, and retire the bonds at maturity (make two separate entries). d. What is the effect of amortizing the bond discount upon (1) annual net income and (2) annual net cash flow from operating activities. (Ignore possible income tax effects.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars not in millions.) Complete this question by entering your answers in the tabs below. Req D a. July 1, 2021, to record the issuance of the bonds. b. December 31, 2021, to pay interest and amortize the bond discount. c. June 30, 2041, to pay interest, amortize the bond discount, and retire the bonds at maturity (make two separate entries). Req A to C View transaction list Journal entry worksheet 3 < 1 2 4
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