Ratio of Liabilities to Stockholders' Equity and Number of Times Interest Earned

The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:

	Current Year		Previous Year
Accounts payable	$464,000		$286,000
Current maturities of serial bonds payable	470,000		470,000
Serial bonds payable, 10%	2,230,000		2,700,000
Common stock, $1 par value	90,000		110,000
Paid-in capital in excess of par	990,000		1,000,000
Retained earnings	3,440,000		2,730,000

The income before income tax was $756,000 and $661,500 for the current and previous years, respectively.

a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.

Current year
Previous year

b. Determine the times interest earned ratio for both years. Round to one decimal place.

Current year
Previous year

c. The ratio of liabilities to stockholders' equity has improved and the number of times bond interest charges were earned has improved from the previous year. These results are the combined result of a larger income before income taxes and lower

Correct

interest expense in the current year compared to the previous year.