Exam 7: Long-Term Debt-Paying Ability

A number of assumptions about future events must be made regarding a defined benefit plan.Which of the following does not represent one of the assumptions?

Which of the following statements is not true relating to a defined contribution pension plan?

A defined benefit plan shifts the risk to the employee as to whether the pension funds will grow to provide for a reasonable pension payment upon retirement.

Mr.Jones has asked you to advise him of the long-term debt position of Dryden Corporation.He provides you with the ratios indicated below. Fixed Charge Coverage 6.3 6.0 5.3 Times Interest Earned 8.2 6.0 5.3 Debt Ratio 40\% 39\% 40\% Debt to Tangible Net Worth 80\% 81\% 84\% Required: Give the implications and limitations of each item separately and then the collective inference one may draw about Dryden's long-term,debt-paying ability.

A times interest earned ratio indicates that:

A fixed charge coverage:

The balance sheet pension liability considers the projected benefit obligation.

Ingram Dog Kennels had the following financial statistics for 2012: Long-term debt (average rate of interest is 8 \% ) \4 00,000 Interest expense 35,000 Net income 48,000 Income tax 46,000 Operating income 107,000 What is the times interest earned for 2012?

Joseph and John,Inc. ,had the following balance sheet results for 2012: (in millions) Current liabilities \1 2.6 Bonds payable 18.6 Lease obligations 2.7 Noncontrolling interest 1.4 Common stock 8.6 Retained earnings Compute the debt-equity ratio.

Under generally accepted accounting principles,an item must clearly represent a commitment to pay out funds in the future in order to be classified as a liability.

The following financial statement data are taken from Xeron Company's 2012 annual report: (in millions) Current assets \1 2.8 Investments 9.4 Intangibles 6.8 Property, plant, and equipment 58.1 Current liabilities 6.4 Long-term debt 39.7 Stockholders' equity 40.8 Compute the debt to tangible net worth ratio.

The debt ratio indicates:

Repayment of a long-term bank loan would decrease the debt ratio.

If a firm has substantial capital or financing leases disclosed in the notes but not capitalized in the financial statements,then:

Increases of profits by cutting the cost of sales would increase the times interest earned.

Times interest earned indicates a firm's long-term,debt-paying ability from the balance sheet view.

Capitalized interest should not be considered as part of interest in the times interest earned computation.

Match the ratio that goes with each formula. - $\frac {\text { Total Liabilities }} { \text {Shareholders' Equity - Intangible Assets} }$

Which of the following statements best compares long-term borrowing capacity ratios?

Match the ratio that goes with each formula. - $\frac {\text { Recurring Earnings, Excluding Interest Expense, Tax Expense, Equity Earnings, and Noncontrolling Interest }} { \text {Interest Expense, Including Capitalized Interest} }$