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Chapter 2: 25BP_a (page 83)
A firm has net income before interest and taxes of \(193,000 and interest expense of \)28,100.
a. What is the times-interest-earned ratio?
Times-interest-earned ratio of the company is 6.87.
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Classify the following balance sheet items as current or noncurrent:
Retained earning | Bond payable |
Accounts payable | Accrued wages payable |
Prepaid expenses | Accounts receivable |
Plant and equipment | Capital in excess of par |
Inventory | Preferred stock |
Common stock | Marketable security |
Using the income statement for Times Mirror and Glass Co., compute the following ratios:
a. The interest coverage.
Times mirror and glass company | |
Sales | \(126,000 |
Less: Cost of goods sold | 93,000 |
Gross profit | \)33,000 |
Less: selling and administrative expenses | 11,000 |
Lease Expenses | 4,000 |
Operating profit* | \(18,000 |
Less: Interest expenses | 3,000 |
Earning before taxes | \)15,000 |
Less: Taxes (30%) | 4,500 |
Earning after taxes | $10,500 |
*equal income before interest and taxes
Precision Systems had sales of \(820,000, cost of goods of \)510,000, selling and administrative expense of \(60,000, and operating profit of \)103,000. What was the value of depreciation expense? Set this problem up as a partial income statement and determine depreciation expense as the “plug” figure required to obtain the operating profit.
Prepare an income statement for Virginia Slim Wear. Take your calculations all the way to computing earnings per share.
Sales | 1,360,000 |
Shares outstanding | 104,000 |
Cost of goods sold | 700,000 |
Interest expenses | 34,000 |
Selling and administration expenses | 49,000 |
Depreciation expenses | 23,000 |
Preferred stock dividend | 86,000 |
Taxes | 100,000 |
Assume the following data for Cable Corporation and Multi-Media Inc.
Capable corporation | Muli-media inc | |
Net income | \(31,200 | \)140,000 |
Sales | 317,000 | 2,700,000 |
Total assets | 402,000 | 965,000 |
Total debts | 163,000 | 542,000 |
Stockholder’s equity | 239,000 | 423,000 |
c. Discuss the factors from part b that added or detracted from one firm
having a higher return on stockholders’ equity than the other firm as
computed in part a.
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