Use the financial statements of Gagnon, Inc., in Short Exercises.

Company Acid-Test Ratio
Horner, Inc. (Utility).............................................. 0.73
Isaacson Company (Department store)................... 0.68
Jona Companies Limited (Grocery store)............... 0.72

Requirements
1. Compute the company€™s debt ratio at December 31, 2010.
2. Compute the company€™s times-interest-earned ratio for 2010. For operating income, use income before both interest expense and income taxes. You can simply add interest expense back to income before taxes.
3. Is Gagnon€™s ability to pay liabilities and interest expense strong or weak? Comment on the value of each ratio computed for questions 1 and2.

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Gagnon, Inc. Balance Sheets (Adapted) December 31, 2010 and 2009 Increase (Decrease 2010 2009 Amount Percenta Dollar amounts in millions Assets Current Assets Cash and cash equivalents Short-term investments Receivables, net Inventories Prepaid expenses and other assets $1,203 $903 $300 33.2 % 7 84 (77) (91.7) 246 256(10) (3.9) 12.3 203343 140 40.8) 91 81 Total current a 1,750 1,667 83 3,619 3,396 223 Property, plant, and equipment, net 6.6 1,089 84 24829.5 14.8 Other assets 824 718 106 Total assets $7282 $6,622 s660 10.0 % Liabilities and Stockholders' Equity Current Liabilities Accounts payable $977 $884 $93 10.5 % 69 (30) (43.5) 5.2 70 73 (3) (4.1) 5.8 3,544 2,982 562 18.8 12.5 5,928 5,169 759 14.7 Short term debt. Other 121 115 Total current liabilities Long-term debt Other liabilities 1,207 1,141 1,177 1,046 131 Total liabiliti Stockholders' Equity Common stock Retained earnings Accumulated other comprehensive (loss) .. 1,513 1,629 (116 (7.1) 159)(176 17 9.7 1354 1453 99 (6.8) Total stockholders' equity Total liabilities and stockholders' equityS7.282 $6,622 660 10.0 %