Use the following comparative income statements and balance sheets to complete the required ratio analysis:

Question

Comparative Income StatementFor the Years Ended December 31, 20-C and 20-B
      20-C  
        20-B  
Net sales$965,400
$1,028,600
Cost of goods sold  515,100
    590,300
Gross profit$450,300
$   438,300
Operating expenses:     Selling expenses$136,000
$   169,100
   Administrative expenses150,200
182,400
   Interest expense    35,400
      39,100
      Total operating expenses$321,600
$   390,600
Income tax expense    45,500
      18,200
      Total expenses$367,100
$   408,800
Net income$  83,200
$     29,500

Comparative Balance SheetsDecember 31, 20-C and 20-B
Assets
     20-C  
        20-B
Cash$ 50,100
$     52,500
Accounts receivable (net)59,800
101,500
Merchandise inventory150,900
171,600
Property, plant, and equipment (net) 718,500
    813,800
Total assets$979,300
$1,139,400
   Liabilities and Stockholders' Equity
  Notes payable (due 6/30/-D)$ 70,000
$     70,000
Accounts payable113,200
155,600
Bonds payable162,000
285,000
Common stock, $10 par value420,000
420,000
Retained earnings 214,100
    208,800
Total liabilities and stockholders' equity$979,300
$1,139,400
Additional information:All sales are made on account. Balances of selected accounts for December 31, 20-A are accounts receivable (net), $73,800; merchandise inventory, $139,200; total assets, $906,900; common stockholders' equity, $527,200; and common shares outstanding, 42,000.
    20-C  
   20-B  
Number of common shares42,000
42,000
Dividends paid$44,400
$49,000
Required:Analyze for 20-B and 20-C the extent to which this corporation is being financed by debt using the (a) ratio of liabilities to stockholders' equity, and analyze its ability to meet its debt obligation using the (b) times interest earned ratio. Indicate whether there has been an improvement or not from 20-B to 20-C. Round all answers to two decimal places.
     20-C
   20-B
Improvement?
a.Ratio of liabilities to stockholders' equity_____
_____
Yes or No
b.Times interest earned ratio_____
_____
Yes or No

What will be an ideal response?

Answer 1