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The following information was available for the year ended December 31, 2016: Earnings before interest and taxes (operating income) $ 81,000 Interest expense 17,000 Income tax expense 22,000 Net income
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10 votes
The following information was available for the year ended December 31, 2016:

Earnings before interest and taxes (operating income) $ 81,000
Interest expense 17,000 Income tax expense 22,000
Net income 42,000
Total assets at year-end 270,000
Total liabilities at year-end 148,000
Required:
a. Calculate the debt ratio at December 31, 2016. (Round your answer to 1 decimal place.)
b. Calculate the debt/equity ratio at December 31, 2016. (Round your answer to 2 decimal places.)
c. Calculate the times interest earned for the year ended December 31, 2016. (Round your answer to 2 decimal places.)

User Pierre Carbonnelle
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1 Answer

18 votes
18 votes

Answer and Explanation:

The calculation is given below:

a. The debt ratio is

= Total liabilities ÷ total assets

= $148,000 ÷ $270,000

= 0.5 times

b. The debt/equity ratio is

= Debt ÷ equity

= $148,000 ÷ ($270,000 - $148,000)

= $148,000 ÷ $122,000

= 1.21 times

c. The times interest earned ratio is

= earning before interest and taxes ÷ interest expense

= $81,000 ÷ $17,000

= 4.76 times

User Sylwester
by
2.5k points
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