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Paddy's Pub reported the following year-end data: Income before interest expense and income tax expense Cost of goods sold Interest expense Total assets Total liabilities Total equity $67,500 $29,000 $ 2,700 $86,800 $24,800 $62,000 Compute the (a) debt-to-equity ratio and (b) times interest earned

Accounting Sep 07, 2020

Paddy's Pub reported the following year-end data: Income before interest expense and income tax expense Cost of goods sold Interest expense Total assets Total liabilities Total equity $67,500 $29,000 $ 2,700 $86,800 $24,800 $62,000 Compute the (a) debt-to-equity ratio and (b) times interest earned. Complete this question by entering your answers in the tabs below. Debt To Equity Times Interest Ratio Earned Compute the times interest earned. Times Interest Earned 1 Choose Denominator: Choose Numerator: Times Interest Earned Times interest earned 1111 times.

Expert Solution

Solution

The values provided in the question are as follows:

Earnings before Interest & Tax = $67,500

Cost of Goods Sold = $29,000

Interest Expenses = $2,700

Total Assets = $86,800

Total Liabilities = $24,800

Total Equity = $62,000

1. The formula to calculate Debt Equity Ratio = Total Liabilities / Shareholder's Equity

  = $24,800/ $62,000

hence Debt Equity Ratio of company = $0.4

2.The formula to calculate Times Interest Earned = Earnings before Interest & Taxes / Interest

= $67,500/ $2,700

hence Times Interest earned by the company is = 25 times   

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