Sidell Corporation's most recent balance sheet and income statement appear below:Balance SheetDecember 31, Year 2 and Year 1(in thousands of dollars)AssetsYear 2Year 1Current assets: Cash$180 $100 Accounts receivable, net 220 200 Inventory 180 200 Prepaid expenses 20 20 Total current assets 600 520 Plant and equipment, net 660 720 Total assets$ 1,260 $ 1,240 Liabilities and Stockholders' Equity Current liabilities: Accounts payable$130 $130 Accrued liabilities 20 20 Notes payable, short term 100 90 Total current liabilities 250 240 Bonds payable 180 200 Total liabilities 430 440 Stockholders' equity: Common stock, $1 par value 200 200 Additional
paid-in capital 300 300 Retained earnings 330 300 Total stockholders' equity 830 800 Total liabilities & stockholders' equity$ 1,260 $ 1,240 Income StatementFor the Year Ended December 31, Year 2(in thousands of dollars)Sales (all on account)$1,230 Cost of goods sold 780 Gross margin 450 Selling and administrative expenses 235 Net operating income 215 Interest expense 29 Net income before taxes 186 Income taxes (30%) 56 Net income$ 130 Required:Compute the following for Year 2:a. Times interest earned ratio.b. Debt-to-equity ratio.
What will be an ideal response?
| a. | Times interest earned ratio = Earnings before interest expense and income taxes ÷ |
= $215 ÷ $29 = 7.41
| b. | Debt-to-equity ratio = Total liabilities ÷ Stockholders' equity |
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