ACC 210 Study Guide - Midterm Guide: Effective Interest Rate, Contingent Liability, Dividend

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purplewater-buffalo170

30 Mar 2017

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Working capital = current assets - current liabilities. Debt to assets ratio = total liabilities/total assets. Times interest earned ratio = (net income +income tax exp. Capital structure is the mixture of liabilities and se used by a business. Interest expense on debt is tax deductible. Taxable income is less than it is without the interest on the debt. Fixed amount of compensation to the lender. Can plan for the cash flow needs for interest expense & debt retirement. In periods of inflation, debt permits borrowers to repay the lender in dollars that have declined in purchasing power! Creditors do not share in profits of the company & cannot vote . Non-installment notes (interest only until note becomes due) Installment notes (each payment includes interest and principal) The amount of money borrower agrees to repay at maturity. Date on which the borrower agrees to pay the creditor the face value (par value, principal)

Related Questions

The 2018 balance sheet for Hallbrook Industries, Inc., is shownbelow.

HALLBROOK INDUSTRIES, INC. Balance Sheet December 31, 2018 ($ in000s)

Assets

Cash $ 200

Short-term investments 150

Accounts receivable 200

Inventories 350

Property, plant, and equipment (net) 1,000

Total assets $ 1,900

Liabilities and Shareholdersâ Equity

Current liabilities $ 400

Long-term liabilities 350

Paid-in capital 750

Retained earnings 400

Total liabilities and shareholdersâ equity $ 1,900

The companyâs 2018 income statement reported the followingamounts ($ in 000s):

Net sales $ 4,600

Interest expense 40

Income tax expense 100

Net income 160

Required:

1. Calculate the current ratio.(Round your answer to 2 decimalplaces.)

2. Calculate the acid-test ratio. (Round your answer to 3decimal places.)

3. Calculate the debt to equity ratio. (Round your answer to 2decimal places.)

4. Calculate the times interest earned ratio. (Round your answerto 1 decimal place.)

1. Current ratio

2. Acid-test ratio

3. Debt to equity ratio

4. Times interest earned ratio .........times

apricotlouse854

Debt Management Ratios

Financial statements for Remington Inc. follow.

RemingtonInc.
ConsolidatedStatements of Income
(In thousands exceptper share amounts)
	2013	2012	2011
Net sales	$ 7,245,088	$ 6,944,296	$ 6,149,218
Cost of goods sold	(5,286,253)	(4,953,556)	(4,355,675)
Gross margin	$ 1,958,835	$ 1,990,740	$ 1,793,543
General and administrativeexpenses	(1,259,896)	(1,202,042)	(1,080,843)
Special and nonrecurring items	2,617	-	-
Operating income	$ 701,556	$ 788,698	$ 712,700
Interest expense	(63,685)	(62,398)	(63,927)
Other income	7,308	10,080	11,529
Gain on sale of investments	-	9,117	-
Income before income taxes	$ 645,179	$ 745,497	$ 660,302
Provision for income taxes	254,000	290,000	257,000
Net income	$ 391,179	$ 455,497	$ 403,302
Net income per share	$1.08	$1.25	$1.11

RemingtonInc.
ConsolidatedBalance Sheets
(In thousands)
ASSETS	Dec. 31,2013		Dec. 31,2012
Current assets:
Cashand equivalents		$ 320,558		$ 41,235
Accounts receivable		1,056,911		837,377
Inventories		733,700		803,707
Other		109,456		101,811
Total current assets		$2,220,625		$1,784,130
Property and equipment, net		1,666,588		1,813,948
Other assets		205,342		248,372
Total assets		$4,092,555		$3,846,450
LIABILITIES ANDSTOCKHOLDERS' EQUITY
Currentliabilities:
Accounts payable		$ 250,363		$ 309,092
Accrued expenses		347,892		274,220
Other current liabilities		15,700		-
Income taxes		93,489		137,466
Total current liabilities		$ 707,444		$ 720,778
Long-term debt		$ 650,000		$ 541,639
Deferred income taxes		275,101		274,844
Other long-term liabilities		61,267		41,572
Total liabilities		$1,693,812		$1,578,833
Stockholders'equity:
Common and preferred stock		$ 189,727		$ 189,727
Additional paid-in capital		128,906		127,776
Retained earnings		2,397,112		2,136,794
		$2,715,745		$2,454,297
Less: Treasury stock, at cost		(317,002)		(186,680)
Total stockholders' equity		2,398,743		$2,267,617
Total liabilities and stockholders'equity		4,092,555		$3,846,450

Required:

Using Remington's financial statements as shown above, respondto the following requirements.

1. Compute the five debt management ratios for2012 and 2013. Round your answers to two decimal places.

	2013	2012
Times interest earned
Debt to equity ratio
Debt to total assets ratio
Long-term debt to equity ratio
Long-term debt to total assetsratio

2. Conceptual Connection: Indicate whether theratios have changed significantly from 2012 to 2013.

Select All the ratios decreased,Times interest earned ratiodecreased, other ratios did not change by much., Debt to equityratio decreased, other ratios did not change by much., Debt tototal assets ratio decreased, other ratios did not change by much,Long-term-debt to equity ratio decreased, other ratios did notchange by much, Long-term-debt to total assets ratio decreased,other ratios did not change by much.

B. Do the ratios suggest that Remington is more or less riskyfor long-term creditors at December 31, 2013, than at December 31,2012? Explain.

SelectMore risky for long-term creditors Less risky forlong-term creditors

bronzetiger591

Please answer the below question/problem ASAP for MBA 560Financial and Managerial Accouting.

	Jona, Inc.
	Balance Sheets (Adapted)
	December 31, 2012 and 2011
					Increase (Decrease)
(Dollar amounts in millions)			2012	2011	Amount	Percentage
Assets
		Current Assets
		Cash and cash equivalents	$398	$310	$88	28.4	%
		Short-term investments	20	40	(20)	(50.0)
		Receivables, net	250	264	(14)	(5.3)
		Inventories	100	86	14	16.3
		Prepaid expenses and other assets	254	312	(58)	(18.6)
		Total current assets	1,022	1,012	10	1.0
		Property, plant, and equipment, net	3,680	3,336	344	10.3
		Intangible assets	1,050	818	232	28.4
		Other assets	818	726	92	12.7
		Total assets	$6,570	$5,892	$678	11.5	%

	Jona, Inc.
	Balance Sheets (Adapted)
	December 31, 2012 and 2011
					Increase (Decrease)
(Dollar amounts in millions)			2012	2011	Amount	Percentage
Liabilities and Stockholders' Equity
		Current Liabilities
		Accounts payable	$1,306	$1,206	$100	8.3	%
		Income tax payable	34	70	(36)	(51.4)
		Short-term debt	230	220	10	4.5
		Other	68	70	(2)	(2.9)
		Total current liabilities	1,638	1,566	72	4.6
		Long-term debt	2,406	1,756	650	37.0
		Other liabilities	1,158	1,066	92	8.6
		Total liabilities	5,202	4,388	814	18.6
		Stockholders' Equity
		Common stock	2	2	â	â
		Retained earnings	1,532	1,690	(158)	(9.3)
		Accumulated other comprehensive (loss)	(166)	(188)	22	11.7
		Total stockholders' equity	1,368	1,504	(136)	(9.0)
		Total liabilities and stockholders' equity	$6,570	$5,892	$678	11.5	%

Data Table

Jona, Inc.
Statements of Income (Adapted)
Year Ended December 31, 2012 and 2011
	(Dollar amounts in millions)	2012	2011
	Revenues	$9,501	$9,319
	Expenses:
	Food and paper (Cost of goods sold)	2,529	2,624
	Payroll and employee benefits	2,139	2,181
	Occupancy and other operating expenses	2,443	2,365
	General and administrative expenses	1,207	1,098
	Interest expense	184	147
	Other expense (income), net	19	(36)
	Income before income taxes	980	940
	Income tax expense	286	269
	Net income	$694	$671

The financial statements of Jona, Inc., follow:


.

1.	Compute the company's debt ratio at December 31, 2012.
	2. Compute the company's times-interest-earned ratio for2012. For operating income, use income before both interest expenseand income taxes. You can simply add interest expense back toincome before taxes.
3.	Is Jonaâs lability to pay liabilities and interest expensestrong or weak? Comment on the value of each ratio computed forquestions 1 and 2.

Select the formula and then enter the amounts to calculate thedebt ratio. (Enter amounts in million. Round your answer to threedecimalâ places.)



/	=	Debt ratio
/	=

2. Compute the company's times-interest-earned ratio for2012.

For operating income, use income before both interest expenseand income taxes. You can simply add interest expense back toincome before taxes. (Enter amounts in million. Round your answerto one decimal place.)

		/		=	Times-interest-earned ratio
		/		=

3. Is Jona's ability to pay liabilities and interest expensestrong or weak? Comment on the value of each ratio computed forrequirements 1 and 2.

The debt ratio is

â¼

high

low

The times-interest earned ratio is

â¼

high

low

Overall theâ company's ability to pay its liabilities andinterest expense looks

â¼

bad

good

mixed

Less

ACC 210 Study Guide - Midterm Guide: Effective Interest Rate, Contingent Liability, Dividend

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