The following information is available from the balance sheets at the ends of the two most recent years and the income statement for the most recent year of Impact Company: Other Information a. Short-term notes payable represents a 12-month loan that matured in November 2010. Interest of 12% was paid at maturity. b. One million dollars of serial bonds had
a. Short-term notes payable represents a 12-month loan that matured in November 2010. Interest of 12% was paid at maturity.
b. One million dollars of serial bonds had been issued ten years earlier. The first series of $200,000 matured at the end of 2010, with interest of 8% payable annually.
c. Cash flow from operations was $185,000 in 2010. The amounts of interest and taxes paid during 2010 were $89,000 and $96,000, respectively.
1. Compute the following for Impact Company:
a. The debt-to-equity ratio at December 31, 2010, and December 31, 2009
b. The times interest earned ratio for 2010
c. The debt service coverage ratio for 2010
2. Comment on Impacts solvency at the end of 2010. Do the times interest earned ratio and the debt service coverage ratio differ in their indication of Impacts ability to pay its debts?Explain.
Solvency means the ability of a business to fulfill its non-current financial liabilities. Often you have heard that the company X went insolvent, this means that the company X is no longer able to settle its noncurrent financial...
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Using Financial Accounting Information The Alternative to Debits and Credits
Authors: Gary A. Porter, Curtis L. Norton