Response to the following problem:
The following data were taken from the financial statements of Durable Structures, Inc., for December 31, 2007 and 2006:
|
|
December 31,
2007
|
December 31,
2006
|
|
Accounts payable
|
$ 150,000
|
$ 140,000
|
|
Current maturities of serial bonds payable
|
200,000
|
200,000
|
|
Serial bonds payable, 8%, issued 2002, due 2012
|
1,000,000
|
1,200,000
|
|
Common stock, $1 par value
|
100,000
|
100,000
|
|
Paid-in capital in excess of par
|
500,000
|
500,000
|
|
Retained earnings
|
1,900,000
|
1,600,000
|
The income before income tax was $528,000 and $336,000 for the years 2007 and 2006, respectively.
a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to two decimal places.
b. Determine the number of times the bond interest charges are earned during the year for both years.
c. What conclusions can be drawn from these data as to the company's ability to meet its currently maturing debts?