Question

[The following information applies to the questions displayed below.) Simon Company's year-end balance sheets follow. 2017 2016 2015 At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity $ 29,378 $ 34, 341 $ 33,678 84,296 60,096 46,292 104,916 78,618 48,305 9,366 9,195 3,781 269,982 247,007 218,644 $497,938 $429,257 $ 350,700 $125,226 $ 74,721 $ 46,292 92,676 101,691 75,180 162,500 162,500 162,500 117,536 90, 345 66,728 $497,938 $429,257 $ 350,700 The company's income statements for the years ended December 31, 2017 and 2016, follow. For Year Ended December 31 Sales Cost of goods sold Other operating expenses Interest expense Income taxes Total costs and expenses Net income Earnings per share 2017 $647,319 $394,865 200,669 11,004 8,415 614,953 $ 32,366 2016 $ 510,816 $332,030 129,236 11,749 7,662 480,677 $ 30,139 $ 1.85 $ 1.99 Calculate the company's long-term risk and capital structure positions at the end of 2017 and 2016 by computing the following ratios. Exercise 13-9 Part 1 (1) Debt and equity ratios. Choose Numerator: Total liabilities Debt Ratio Debt ratio 2017: 2016: Debt Ratio Choose Denominator: Total assets IS 497,938 $ 429,257 Equity Ratio 1 Choose Denominator: 1 Total assets 497,938 429,257 = Choose Numerator: Total equity Equity Ratio Equity ratio 2017: = 2016: $

Answer 1

Requirement: 1 Debt Ratio Numerator 1 Denominator Total Liabilities / Total Assets 217902 1 497938 176412 / 429257 = | | = Years 2017 2016 Debt Ratio Debt Ratio 43.8 % 41.1 % L = = | Years 2017 2016 Equity Ratio 1 Denominator / Total Assets 497938 429257 Numerator Total Equity 280036 252845 Equity Ratio Equity Ratio 56.2 % 58.9 %

Requirement: 2 Debt-to - Equity Ratio Numerator umerator 1 Denominator Denominator Total Liabilities / Total Equity 217902 280036 176412 / 252845 = = | Years 2017 2016 Debt-to-Equity Debt-to-Equity 0.78 to 1 0.70 to 1 L Requirement: 3 Years 2017 2016 Times Interest Earned Ratio Numerator 7 Denominator = EBIT 7 Interest Expense = 51785 / 11004 49550 11749 Times Interest Earned Times Interest Earned 4.7 times 4.2 times Working notes 2016 30139 2017 32366 8415 11004 51785 Net Income Income tax Interest expense EBIT 7662 11749 49550