Question

The accounting records of Arroya Foods, Inc., include the following items at December 31, 2014:


Requirements
1. Show how each relevant item would be reported on the Arroya Foods, Inc., classified balance sheet, including headings and totals for current liabilities and long-term liabilities.
2. Answer the following questions about Arroya Food’s financial position at December 31, 2014:
a. What is the carrying amount of the bonds payable (combine the current and long-term amounts)?
b. Why is the interest-payable amount so much less than the amount of interest expense?
3. How many times did Arroya Foods cover its interest expense during 2014?
4. Assume that all of the existing liabilities are included in the information provided. Calculate the leverage ratio and debt ratio of the company. Evaluate the health of the company from a leverage point of view. What other information would be helpful in making your evaluation?
5. Independent of your answer to (4), assume that Footnote 8 of the financial statements includes commitments for operating leases over the next 15 years in the amount of $3,000,000. If the company had to capitalize these leases in 2014, how would it change the leverage ratio and the debt ratio? How would this impact your assessment of the company’s health from a leverage point ofview?


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  • CreatedJuly 25, 2014
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