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Times Interest Earned Ratio

Times Interest Earned Ratio

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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What is Ratio Corporation's Fiscal 2021 Times Interest Earned Ratio?

 

 

 

1.41
 

2.57
 

4.5
 

1.63
**RATIO CORPORATION BALANCE SHEET** **December 31** --- ### ASSETS #### Current Assets - **2021 / 2020** - Cash: $20,000 / $10,000 - Marketable Securities: $18,000 / $13,000 - Accounts Receivable: $8,000 / $5,000 - Merchandise Inventory: $30,000 / $25,000 - Other Current Assets: $4,000 / $5,000 - **Total Current Assets**: $80,000 / $58,000 #### Noncurrent Assets - Buildings and Equipment (cost): $550,000 / $500,000 - Accumulated Depreciation: $(210,000) / $(200,000) - Buildings and Equipment (net): $340,000 / $300,000 - **TOTAL ASSETS**: $420,000 / $358,000 --- ### LIABILITIES & SHAREHOLDERS EQUITY #### Current Liabilities - **2021 / 2020** - Accounts Payable: $18,000 / $15,000 - Wages Payable: $11,000 / $1,000 - Other Payables: $9,000 / $12,000 - **Total Current Liabilities**: $38,000 / $28,000 #### Noncurrent Liabilities - Bonds Payable: $208,000 / $160,000 - **TOTAL LIABILITIES**: $246,000 / $188,000 --- **Notes:** - The balance sheet provides a snapshot of the financial position of Ratio Corporation as of December 31 for the years 2021 and 2020. - It lists the company's assets, including both current (short-term) and noncurrent (long-term), against its liabilities, indicating what the company owes. - Depreciation is accounted for in reducing the book value of buildings and equipment.
Transcribed Image Text:**RATIO CORPORATION BALANCE SHEET** **December 31** --- ### ASSETS #### Current Assets - **2021 / 2020** - Cash: $20,000 / $10,000 - Marketable Securities: $18,000 / $13,000 - Accounts Receivable: $8,000 / $5,000 - Merchandise Inventory: $30,000 / $25,000 - Other Current Assets: $4,000 / $5,000 - **Total Current Assets**: $80,000 / $58,000 #### Noncurrent Assets - Buildings and Equipment (cost): $550,000 / $500,000 - Accumulated Depreciation: $(210,000) / $(200,000) - Buildings and Equipment (net): $340,000 / $300,000 - **TOTAL ASSETS**: $420,000 / $358,000 --- ### LIABILITIES & SHAREHOLDERS EQUITY #### Current Liabilities - **2021 / 2020** - Accounts Payable: $18,000 / $15,000 - Wages Payable: $11,000 / $1,000 - Other Payables: $9,000 / $12,000 - **Total Current Liabilities**: $38,000 / $28,000 #### Noncurrent Liabilities - Bonds Payable: $208,000 / $160,000 - **TOTAL LIABILITIES**: $246,000 / $188,000 --- **Notes:** - The balance sheet provides a snapshot of the financial position of Ratio Corporation as of December 31 for the years 2021 and 2020. - It lists the company's assets, including both current (short-term) and noncurrent (long-term), against its liabilities, indicating what the company owes. - Depreciation is accounted for in reducing the book value of buildings and equipment.
**Ratio Corporation Income Statement** *For the Year Ended 12/31/2021* - **Net Sales:** $1,000,000 - **Cost of Goods Sold (CGS):** $(800,000) - **Profit Margin:** $200,000 - **Selling, General & Administrative Expenses (SG&A):** $(20,000) - **Operating Income:** $180,000 - **Interest Expense:** $(40,000) - **Pre-Tax Income:** $140,000 - **Tax Expense @ 40%:** $(56,000) - **Net Income:** $84,000 This income statement provides a detailed breakdown of Ratio Corporation's financial performance for the year ended December 31, 2021. It begins with the total revenue generated from net sales and deducts expenses related to the cost of goods sold to determine the profit margin. Operating income is calculated by further subtracting SG&A expenses from the profit margin. After accounting for interest expenses, the pre-tax income is determined. Finally, the net income is obtained by subtracting the tax expense from the pre-tax income.
Transcribed Image Text:**Ratio Corporation Income Statement** *For the Year Ended 12/31/2021* - **Net Sales:** $1,000,000 - **Cost of Goods Sold (CGS):** $(800,000) - **Profit Margin:** $200,000 - **Selling, General & Administrative Expenses (SG&A):** $(20,000) - **Operating Income:** $180,000 - **Interest Expense:** $(40,000) - **Pre-Tax Income:** $140,000 - **Tax Expense @ 40%:** $(56,000) - **Net Income:** $84,000 This income statement provides a detailed breakdown of Ratio Corporation's financial performance for the year ended December 31, 2021. It begins with the total revenue generated from net sales and deducts expenses related to the cost of goods sold to determine the profit margin. Operating income is calculated by further subtracting SG&A expenses from the profit margin. After accounting for interest expenses, the pre-tax income is determined. Finally, the net income is obtained by subtracting the tax expense from the pre-tax income.
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