Taking It to the Net — BTN 9-5
1. McDonald’s 2013 current liabilities include the following:
Accounts payable
Income taxes
Accrued payroll and other liabilities
2. The portion of long-term debt maturing in the next 12 months ($
millions) is:
$530 / $14,129.8 = 3.75 %
maturing debt.”
3. Times interest earned for McDonald’s as of 12/31/2013
($ millions) 12/31/2013
Net Income……………..…………………………..….….….… $ 5,586.0
Plus income taxes………………..…………………..….….. 2,618.6
Teamwork in Action — BTN 9-6
1. Option A: Interest Expense = $6,000 x 10% x 90/360 = $150
The interest expense in option B does exceed option A. If interest cost
is the only consideration, then Option A is the preferred loan. However,
2. Entries:
2a. Issue date, Option A
June 1 Cash……………………………………………….……………….. 6,000
Notes Payable……….………………….…………..….… 6,000
Borrowed cash by issuing an
interest-bearing note.
Repaid note plus interest.
2d. Maturity date, Option B
Sep. 29 Notes Payable………….………………………………….…... 6,000
Interest Expense……….……………………………………… 160
Cash…………………………………………………………... 6,160
Repaid note plus interest.
Teamwork in Action (Concluded)
4. Entries:
4a. Adjusting entry, Option A (Dec. 31)
Dec. 31 Interest Expense……………………….……………………... 50
Interest Payable…………….……………..……….….… 50
4b. Adjusting entry, Option B (Dec. 31)
Dec. 31 Interest Expense……………………….……………………... 40
4c. Maturity date entry, Option A
March 1 Interest Expense……….……………….…………………….. 100
Interest Payable………….………………….…………..….… 50
4d. Maturity date entry, Option B
March 31 Interest Expense…………..………………..………………… 120
Interest Payable………….………………….…………..….… 40
Entrepreneurial Decision — BTN 9-7
1.
Uncharted Play
Income Statement (Prospective)
Current
Operations European Total
Sales……………..………………….…... $1,000,000 $ 250,000 $1,250,000
Operating expenses (55%)…...... 550,000 137,500 687,500
2. Times interest earned = $562,500 / $21,000 = 26.8 times
3.
Uncharted Play
Income Statement (Prospective)
Current
Operations European Total
Sales……………..………………….…... $1,000,000 $ 400,000 $1,400,000
Operating expenses (55%)…...... 550,000 220,000 770,000
Entrepreneurial Decision (concluded)
4.
Uncharted Play
Income Statement (Prospective)
Current
Operations European Total
Sales……………..………………….…... $1,000,000 $ 100,000 $1,100,000
Operating expenses (55%)…...... 550,000 55,000 605,000
Income before interest……………. 450,000 45,000 495,000
Times interest earned = $495,000 / $21,000 = 23.6 times
5. In each of these cases, the company’s times interest earned is at least
Hitting the Road — BTN 9-8
There is no formal solution to this problem. A discussion of the importance
Global Decision — BTN 9-9
1. Samsung— Times interest earned
(KRW in millions) Current Year Prior Year
Net income……………..……………………………₩ 30,474,764 ₩ 23,845,285
Add income taxes………..….….….….….….... 7,889,515 6,069,732
Income before taxes and interest…..….….₩ 46,119,251 ₩ 37,849,467
Times interest earned ratio….….….….….... 5.95a4.77b
2. Of these three companies, Apple and Google both have superior
coverage of interest expense for the two years analyzed. Specifically,