E10-16

Calculate liquidity and solvency ratios; discuss impact of unrecorded obligations on liquidity and solvency.

(LO 7), AP Suppose McDonald's 2014 financial statements contain the following selected data (in millions).

Current assets $3,416.3

Total assets 30,224.9

Current liabilities 2,988.7

Total liabilities 16,191.0

Interest expense $473.2

Income taxes 1,936.0

Net income 4,551.0

Instructions 1. Compute the following values and provide a brief interpretation of each.

A. Working capital.

B. Current ratio.

C. Debt to assets ratio.

D. Times interest earned.

2. Suppose the notes to McDonald's financial statements show that subsequent to 2014 the company will have future minimum lease payments under operating leases of $10,717.5 million. If these assets had been purchased with debt, assets and liabilities would rise by approximately $8,800 million. Recompute the debt to assets ratio after adjusting for this. Discuss your result