Reference no: EM132879490

Problem - Ratio of liabilities to stockholders' equity and number of times interest charges earned

The following data were taken from the financial statements of Hermes Inc. for December 31, 2012 and 2011:

	Dec. 31, 2012	Dec. 31, 2011
Accounts payable	$473,960	$325,000
Current maturities of serial bonds payable	500,000	500,000
Serial bonds payable, 9%, issued 2007, due 2017	2,500,000	3,000,000
Common stock, $1 par value	100,000	100,000
Paid-in capital in excess of par	1,200,000	1,200,000
Retained earnings	3,662,8000	2,950,000

The income before income tax was $891,000 and $787,500 for the years 2012 and 2011, respectively.

Required -

a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.

b. Determine the number of times the bond interest charges are earned during the year for both years. Round to one decimal place.

c. What conclusions can be drawn from these data as to the company's ability to meet its currently maturing debts?