Below are the Income Statement and Balance Sheet for Longborg Corporation for the years ended 2020 and 2021. Calculate the leverage ratios in the table to the right for the year ended 2021. Longborg Corporation Comparative Income Statement For the Years Ended December 31, 2021 and 2020 2021 2020 Amount Amount Sales $60,200,300 $52,410,500 Cost of goods sold 44,850,700 39,050,800 Gross profit 15,349,600 13,359,700 Selling expenses 2,725,500 2,860,600 Administrative expenses 2,850,300 2,575,400 Total operating expenses 5,575,800 5,436,000 Income from operations 9,773,800 7,923,700 Interest Expense 385,200 425,600 Other income 125,000 105,000 Income before income tax 9,513,600 7,603,100 Income tax expense 3,329,800 2,661,000 Net income $6,183,800 $4,942,100 Longborg Corporation Comparative Balance Sheet As of December 31, 2021 and 2020 2021 2020 Cash $5,590,800 $4,597,100 Accounts receivable, net 9,254,800 8,434,800 Inventories 3,003,800 2,579,300 Prepaid Expenses 1,162,800 905,800 Total current assets 19,012,200 16,517,000 Fixed assets, net 23,908,900 23,013,100 Total assets $42,921,100 $39,530,100 Accounts payable $6,038,800 $6,025,700 Accrued expenses 1,918,200 1,485,600 Other current liabilities 2,842,700 5,421,200 Total current liabilities 10,799,700 12,932,500 Long-term debt 14,149,300 14,809,300 Common stock 1,500,000 1,500,000 Retained earnings 16,472,100 10,288,300 Total liabilities & equity $42,921,100 $39,530,100

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Below are the Income Statement and Balance Sheet for Longborg Corporation
for the years ended 2020 and 2021. Calculate the leverage ratios in the table to the right
for the year ended 2021.

Longborg Corporation
Comparative Income Statement
For the Years Ended December 31, 2021 and 2020
		2021	2020
		Amount	Amount
	Sales	$60,200,300	$52,410,500
	Cost of goods sold	44,850,700	39,050,800
	Gross profit	15,349,600	13,359,700
	Selling expenses	2,725,500	2,860,600
	Administrative expenses	2,850,300	2,575,400
	Total operating expenses	5,575,800	5,436,000
	Income from operations	9,773,800	7,923,700
	Interest Expense	385,200	425,600
	Other income	125,000	105,000
	Income before income tax	9,513,600	7,603,100
	Income tax expense	3,329,800	2,661,000
	Net income	$6,183,800	$4,942,100


Longborg Corporation
Comparative Balance Sheet
As of December 31, 2021 and 2020
		2021	2020
	Cash	$5,590,800	$4,597,100
	Accounts receivable, net	9,254,800	8,434,800
	Inventories	3,003,800	2,579,300
	Prepaid Expenses	1,162,800	905,800
	Total current assets	19,012,200	16,517,000
	Fixed assets, net	23,908,900	23,013,100
	Total assets	$42,921,100	$39,530,100

	Accounts payable	$6,038,800	$6,025,700
	Accrued expenses	1,918,200	1,485,600
	Other current liabilities	2,842,700	5,421,200
	Total current liabilities	10,799,700	12,932,500
	Long-term debt	14,149,300	14,809,300
	Common stock	1,500,000	1,500,000
	Retained earnings	16,472,100	10,288,300
	Total liabilities & equity	$42,921,100	$39,530,100

Expert Solution

Step 1

Leverage Ratios:

One of the most crucial financial statistics is the leverage ratio, which shows how much of the company's capital is held in the form of debt. It also examines the business's ability to fulfil its responsibilities. Leverage ratio becomes more important when it examines the company's capital structure and how it may be managed to allow it to pay down its debts.

There are two main categories of leverage ratios: Capitalization Ratio and Coverage Ratio

Capitalization Ratio: In order for the business to concentrate on long-term solvency, the capital structure ratio is employed to decide the financing strategy.
Coverage Ratio :Coverage ratios assess a company's capacity to pay dividends and interest on its debt, as well as other debt-related obligations.

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