Rahul Corporation
Comparative Income Statement and Reconciliation of Retained Earnings
For the Year Ended December 31, 2012 and 2011 2012 2011
Sales $ 84,500 $ 83,000
Cost of goods sold 56,900 56,600
Gross margin 27,600 26,400
Operating expenses:
Selling expenses 14,400 13,500
Administrative expenses 8,800 8,400
Total operating expenses 23,200 21,900
Income from operations 4,400 4,500
Interest expense 1,200 1,000
Income before taxes 3,200 3,500
Less income taxes 1,280 1,400
Net income 1,920 2,100
Dividends to preferred shareholders 440 520
Net income remaining for common stockholders 1,480 1,580
Dividends to common stockholders 580 580
Net income added to retained earnings 900 1,000
Retained earnings, beginning of the year 32,220 31,220
Retained earnings, end of the year $ 33,120 $ 32,220
Required: Compute the following financial ratios for the year 2012:
a. Current ratio.
b. Acid test ratio ( quick ratio).
c. Debt to equity ratio.
d. Times interest earned. Comment on the results.