财务报告与分析三友会计名著译丛 第07章习题答案doc.docx

1、财务报告与分析三友会计名著译丛 第07章习题答案docChapter 7Long-Term Debt-Paying AbilityPROBLEMSPROBLEM 71 Earnings before interest and tax: Net sales $1,079,143 Cost of sales ( 792,755) Selling and administration ( 264,566) $ 21,822a. b. Cash basis times interest earned: PROBLEM 72 Recurring Earnings Excluding Interest E

2、xpense, Tax Expense, Equity Earnings, a. Times Interest Earned = and Minority Earnings Interest Expense, Including Capitalized Interest Income before income taxes $675 Plus interest 60 Adjusted income $735 Interest expense $ 60 Times Interest Earned = $735 = 12.25 times per year $60b. Adjusted incom

3、e from (part a) $735 1/3 of operating lease payments (1/3 x $150) 50 Adjusted income, including rentals $785 Interest expense $ 60 1/3 of operating lease payments 50 $110 Fixed Charge Coverage = $785 = 7.14 times per year $110PROBLEM 73 Recurring Earnings, Excluding Interest Expense, Tax Expense, Eq

4、uity Earning, a. Times Interest Earned = and Minority Earnings_ Interest Expense, Including Capitalized Interest Income before income taxes and extraordinary charges $36 Plus interest 16 (1) Adjusted income 52 (2) Interest expense $16 Times Interest Earned: (1) divided by (2) = 3.25 times per year R

5、ecurring Earnings, Excluding Interest Expense, Tax Expense, Equity Earnings, and Minority Earnings + Interest Portionb. Fixed Charge Coverage = Of Rentals_ Interest Expense, Including Capitalized Interest + Interest Portion Of Rentals Adjusted income (part a) $ 52 1/3 of operating lease payments (1/

6、3 x $60) 20 (l) Adjusted income, including rentals $72 Interest expense $16 1/3 of operating lease payments 20 (2) Adjusted interest expense $36 Fixed charge coverage: (1) divided by (2) = 2.00 times per yearPROBLEM 74a. Debt Ratio = b. Debt/Equity Ratio = c. Ratio of Total Debt to Tangible Net Wort

7、h = Total Liabilities = $174,979 = $174,979 = 70.9% Tangible Net Worth $249,222 $2,324 $246,898d. Kaufman Company has financed over 41% of its assets by the use of funds from outside creditors. The Debt/Equity Ratio and the Debt to Tangible Net Worth Ratio are over 70%. Whether these ratios are reas

8、onable depends upon the stability of earnings.PROBLEM 7-5RatioTransactionTimesInterestEarnedDebtRatioDebt/EquityTotal Debt/TangibleNet Wortha. Purchase of buildings financed by mortgageb. Purchase inventory on short-term loanc. Declaration and payment of cash dividendd. Declaration and payment of st

9、ock dividende. Firm increases profits by cutting cost of salesf. Appropriation of retained earningsg. Sale of common stockh. Repayment of long-term bank loani. Conversion of bonds to common stock j. Sale of inventory at greater than cost-00+00+0-0-+0-0-+0-0-PROBLEM 76a. Times Interest Earned:Times i

10、nterest earned relates earnings before interest expense, tax, minority earnings, and equity income to interest expense. The higher this ratio, the better the interest coverage. The times interest earned has improved materially in strengthening the longterm debt position. Considering that the debt ra

11、tio and the debt to tangible net worth have remained fairly constant, the probable reason for the improvement is an increase in profits.The times interest earned only indicates the interest coverage. It is limited in that it does not consider other possible fixed charges, and it does not indicate th

12、e proportion of the firms resources that have come from debt.Debt Ratio:The debt ratio relates the total liabilities to the total assets.The lower this ratio, the lower the proportion of assets that have been financed by creditors.For Arodex Company, this ratio has been steady for the past three yea

13、rs. This ratio indicates that about 40% of the total assets have been financed by creditors. For most firms, a 40% debt ratio would be considered to be reasonable.The debt ratio is limited in that it relates liabilities to the book value of total assets. Many assets would have a value greater than b

14、ook value. This tends to overstate the debt ratio and, therefore, usually results in a conservative ratio. The debt ratio does not consider immediate profitability and, therefore, can be misleading as to the firms ability to handle longterm debt.Debt to Tangible Net Worth:The debt to tangible net wo

15、rth relates total liabilities to shareholders equity less intangible assets. The lower this ratio, the lower the proportion of tangible assets that has been financed by creditors.Arodex Company has had a stable ratio of approximately 81% for the past three years. This indicates that creditors have f

16、inanced 81% as much as the shareholders after eliminating intangibles from the shareholders contributionfor most firms, this would be considered to be reasonable. The debt to tangible net worth ratio is more conservative than the debt ratio because of the elimination of intangible items. It is also

17、conservative for the same reason that the debt ratio was conservative, in that book value is used for the assets and many assets have a value greater than book value. The debt to tangible net worth ratio also does not consider immediate profitability and, therefore, can be misleading as to the firms

18、 ability to handle longterm debt.Collective inferences one may draw from the ratios of Arodex, Company:Overall it appears that Arodex Company has a reasonable and improving longterm debt position. The debt ratio and the debt to tangible net worth ratios indicate that the proportion of debt appears t

19、o be reasonable. The times interest earned appears to be reasonable and improving.The stability of earnings and comparison with industry ratios will be important in reaching a conclusion on the longterm debt position of Arodex Company.b. Ratios are based on past data. The future is what is important

20、, and uncertainties of the future cannot be accurately determined by ratios based upon past data.Ratios provide only one aspect of a firms long-term debt-paying ability. Other information, such as information about management and products, is also important.A comparison of this firms ratios with rat

21、ios of other firms in the same industry would be helpful in order to decide if the ratios are reasonable.PROBLEM 77 Recurring Earnings, Excluding Interesta. 1. Times Interest Expense, Tax Expense, Equity Earnings, Earned = and Minority Earnings_ Interest Expense, Including Capitalized Interest $162,

22、000 = 8.1 times per year $ 20,0002. Debt Ratio = Total Liabilities Total Assets $193,000 = 32.2% $600,0003. Debt/Equity Ratio = Total Liabilities Stockholders Equity $193,000 = 47.4% $407,000 4. Debt to Tangible Net Worth Ratio = Total Liabilities Tangible Net Worth $193,000 = 49.9% $407,000 $20,000

23、b. New asset structure for all plans: Assets Current assets $226,000 Property, plant, and equipment 554,000 Intangibles 20,000 Total assets $800,000 Liabilities and Equity Plan A Current Liabilities $ 93,000 $200,000,000/100 = Longterm debt 100,000 2,000,000 shares Preferred stock 250,000 Common equ

24、ity 357,000 No change in net income $800,000 Plan B Current liabilities $ 93,000 $200,000,000/10 = Longterm debt 100,000 20,000,000 shares Preferred stock 50,000 Common stock 120,000 Premium on common stock 300,000 Retained earnings 137,000 No change in net income $800,000 Plan C Current liabilities

25、 $ 93,000 Operating Income $162,000 Longterm debt 300,000 Interest expense 52,000* Preferred stock 50,000 110,000 Common equity 357,000 Taxes (40%) 44,000 $800,000 Net Income $ 66,000 * $20,000 + 16% ($200,000) = $52,0001. Recurring Earnings, Excluding Interest Expense, Times Interest Tax Expense, E

26、quity Earnings, and Minority Earnings Earned = Interest Expense, Including Capitalized Interest Plan A Plan B Plan C 2. Debt = Total Liabilities Ratio Total Assets Plan A Plan B Plan C 3. Debt/Equity Ratio = Plan A Plan B Plan C 4. Debt to Tangible Net Worth = Plan A Plan B Plan C c. Preferred Stock

27、 Alternative: Advantages:1. Lesser drop in earnings per share than under the common stock alternative.2. Not the absolute reduction in earnings that accompanied the debt alternative. 3. There would be an improvement in the Debt Ratio, Debt/Equity Ratio, and Total Debt to Tangible Net Worth Ratio.4.

28、Does not have the reduced times interest earned that accompanied alternative of issuing longterm debt.Disadvantages:1. An increase in the fixed preferred dividend charge that the firm must pay before any dividends can be paid to common stockholders.Common Stock Alternative: Advantages: 1. No increas

29、e in fixed obligations. 2. There would be an improvement in the Debt Ratio, Debt/Equity Ratio, and the Total Debt to Tangible Net Worth Ratio. 3. Not the absolute reduction in earnings that accompanied the debt alternative. 4. Does not have the reduced times interest earned that accompanied alternat

30、ive of issuing longterm debt.Disadvantages:1. Maximum dilution in earnings per share of the three alternatives. Long-Term Bonds Alternative: Advantages: 1. Higher earnings per share than with common stock.Disadvantages: 1. Material decline in Times Interest Earned. 2. A material increase in the Debt Ratio, Debt/Equity Ratio, and Total Debt to Tangible Net Worth Ratio. 3. Absolute reduction in earnings. 4. Increase in the interest fixed charge that must be paid.d. The 10% pre