Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 10 Liabilities 479

a. Determine the current and quick ratios for both companies. Round to two decimal places.

b. Interpret the ratio differences between the two companies.

The following data were taken from recent annual reports of Trump Hotels and Casino Resorts,

Inc., which owns and operates casino-based entertainment resorts in Atlantic City, New Jersey.

2004 2003

Interest expense $221,048,000 $225,867,000

Income before income tax (15,496,000) (90,570,000)

Dec. 25, 2004 Dec. 27, 2003

Total liabilities $4,101 $4,500

Capital stock 659 916

Retained earnings 936 204

For the Year Ended

Dec. 25, 2004 Dec. 27, 2003

Interest expense $ 129 $173

Income before income tax 1026 886

Exercise 10-25

Number of times interest
charges earned

Goal 6

Exercise 10-26

Long-term solvency ratios for
comparative years

Goal 6

Exercise 10-27

Appendix: Compute bond
price, discount, and journalize
entries.

Appendix

a. Determine the number of times interest charges were earned for the current and preceding

years. Round to two decimal places.

b. What conclusions can you draw?

Yum! Brands, Inc.,is a nationwide restaurant company whose brands include Taco Bell, KFC,

and Pizza Hut. Selected balance sheet information is as follows for two comparative dates.

In addition, the income statement for these two periods showed the following income before tax

and interest expense information:

a. Determine the ratio of total liabilities to total assets at the end of the two accounting peri-

ods. Round to two decimal places.

b. Determine the number of times interest charges were earned for the two fiscal years.

c. Interpret the change in the two ratios across the two periods.

Motley Corporation issued $4,000,000, five-year, 8% bonds on January 1, 2007. The bonds were

issued at an effective interest rate of 11%, resulting in Motley Corporation receiving cash pro-

ceeds of $3,547,740.80. The company uses the effective interest rate method to amortize bond dis-

counts and premiums.

a. Using the present value tables in Appendix A, journalize the entries to record the following:

1. Sale of the bonds.


2. First semiannual interest payment (amortization of discount is to be recorded
   semiannually using the interest method of amortization).


3. Second semiannual interest payment.
   b. Compute the amount of bond interest expense for the first year. (Round to the nearest
   penny.)