The following information is available from the balance sheets at the ends of the two most recent years and the income statement for the most recent year of Impact Company:

Other Information
a. Short-term notes payable represents a 12-month loan that matured in November 2014. Interest of 12% was paid at maturity.
b. One million dollars of serial bonds had been issued ten years earlier. The first series of $200,000 matured at the end of 2014, with interest of 8% payable annually.
c. Cash flow from operations was $185,000 in 2014. The amounts of interest and taxes paid during 2014 were $89,000 and $96,000, respectively.

Required
1. Compute the following for Impact Company:
a. The debt-to-equity ratio at December 31, 2014, and December 31, 2013
b. The times interest earned ratio for 2014
c. The debt service coverage ratio for 2014
2. Comment on Impact€™s solvency at the end of 2014. Do the times interest earned ratio and the debt service coverage ratio differ in their indication of Impact€™s ability to pay its debts? Explain.

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December 31 2014 2013 Accounts payable 2$ 65,000 2$ 50,000 25,000 Accrued liabilities 35,000 Taxes payable Short-term notes payable Bonds payable due within next year 60,000 45,000 75,000 200,000 200,000 $ 350,000 $ 600,000 $ 405,000 $ 800,000 Total current liabilities Bonds payable Common stock, $10 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $1,000,000 $1,000,000 500,000 $1,500,000 $2,705,000 650,000 $1,650,000 $2,600,000 2014 Sales revenue $1,600,000 Cost of goods sold Gross profit Selling and administrative expense Operating income Interest expense 950,000 $ 650,000 300,000 $ 350,000 89,000 $ 261,000 Income before tax Income tax expense 111,000 $ 150,000 Net income