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Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition by Donald E. Kieso, Paul D. Kimmel, Jerry J. Weygandt

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EXERCISE 10-11

Purpose: (L.O. 3, 8) This exercise will review the computation of the current ratio, debt to total assets ratio, and the times interest earned ratio.

The balance sheets at December 31, 2014 and December 31, 2013 and the income statement for 2014 for the M.F. Specie Corporation are presented below:

M.F. SPECIE CORPORATION

Balance Sheet

December 31

Assets

images

Additional information: Dividends of $.50 per share were paid in 2014 to common stockholders. The notes payable have a maturity date in 2017. All sales during 2014 were on credit. The market value per share of common stock was $30 at December 31, 2014.

Instructions

A creditor of M.F. Specie Corporation is analyzing recent financial statements to determine the company's short-term liquidity, long run solvency, and ability to pay interest as it comes due. Refer to the financial statements and compute the following:

  1. Working capital ratio at December 31, 2014.
  2. Debt to total assets ratio at December 31, 2014.
  3. Times interest earned ratio for 2014.

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