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Category > Accounting Posted 19 Aug 2017 My Price 13.00

Ernst Company’

Cornerstone Exercise 16-17 Calculating the Debt Ratio and the Debt-to-Equity Ratio

Ernst Company’s balance sheet shows total liabilities of $32,500,000, total stockholders’ equity of $8,125,000, and total assets of $40,625,000.

Required:

Note: Round answers to two decimal places.

1. Calculate the debt ratio.

2. Calculate the debt-to-equity ratio.

	Amount	Percent
Net sales	$ 8,281,989	100.0%
Less: Cost of goods sold	(5,383,293)	65.0
Gross margin	$ 2,898,696	35.0
Less: Operating expenses	(1,323,368)	16.0
Operating income	$ 1,575,328	19.0
Less: Interest expense	(50,000)	0.6
Income before taxes	$ 1,525,328	18.4
Less: Income taxes (40%)*	(610,131)	7.4
Net income	$ 915,197	11.0

Balance, beginning of period	$1,979,155
Net income	915,197
Total	$2,894,352
Less: Preferred dividends	(80,000)
Dividends to common stockholders	(201,887)
Balance, end of period	$2,612,465

Financial Statement Analysis

Assets

Current assets:

Somerville Company Comparative Balance Sheets

At December 31, 2013 and 2014

2013 2014

Cash $2,875,000 $2,580,000

Marketable securities 800,000 700,000

Accounts receivable (net) 939,776 690,000

Inventories 490,000 260,000

Other 93,000 74,261

Total current assets $5,197,776 $4,304,261 Property and equipment:

Land $1,575,000 $1,067,315

Building and equipment (net) 1,348,800 1,150,000

Total long-term assets $2,923,800 $2,217,315 Total assets $8,121,576 $6,521,576 Liabilities and Stockholders’ Equity

Current liabilities:

Notes payable, short term $1,170,127 $ 543,641 Accounts payable 298,484 101,500

Current maturity of long-term debt 3,000 2,000

Accrued payables 200,000 57,780

Total current liabilities $1,671,611 $ 704,921 Long-term liabilities:

Bonds payable, 10%	500,000	500,000
Total liabilities	$2,171,611	$1,204,921
Stockholders’ equity:
Preferred stock, $25 par, 8%	$1,000,000	$1,000,000
Common stock, $1.50 par	337,500	337,500
Additional paid-in capital*	2,000,000	2,000,000
Retained earnings	2,612,465	1,979,155
Total stockholders’ equity	$5,949,965	$5,316,655
Total liabilities and stockholders’ equity	$8,121,576	$6,521,576
* For common stock only.

Answers

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Status NEW Posted 19 Aug 2017 03:08 PM My Price 13.00

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