Calculation of debt ratio and interest coverage ratio (Learning Objective 7)

10–15 min.

The classified balance sheet and selected income statement data for Quinn, Inc., as of December 31, 2014, are presented next.

Quinn, Inc.

Balance Sheet December 31, 2014 Current Assets:

Cash Accounts Receivable Supplies Prepaid Rent Total Current Assets Fixed Assets:

Land Equipment Less: Accumulated Depreciation, Equipment Building Less: Accumulated Depreciation, Building Total Fixed Assets Total Assets

$ 10,000 3,000 500 3,500

$ 17,000 60,000 50,000 198,000 308,000

$325,000

$ 1,500 2,700 300 56,500 61,000 25,000 148,000 173,000 30,000 61,000 91,000

$325,000 Current Liabilities:

Accounts Payable Salaries Payable Unearned Service Revenue Note Payable Total Current Liabilities Long-Term Debt:

Mortgage Note Payable Bonds Payable Total Long-Term Debt Common Stock Retained Earnings Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity

$ 55,000 5,000 220,000 22,000 ASSETS LIABILITIES STOCKHOLDERS’ EQUITY Selected Income Statement Data Gross Profit $163,400 Operating Expenses 135,600 Earnings Before Interest and Taxes 27,800 Interest Expense 18,700 Income Tax Expense 2,900 Net Income 6,200 Requirements 1. Calculate Quinn’s debt ratio and interest coverage ratio as of December 31, 2014.

Round to two decimal places.

2. What percentage of Quinn’s assets belong to the stockholders?

3. Would you be willing to extend credit to Quinn, Inc.? Why or why not?

AppendixLO1