Rio Imports
Information from the Financial Statements Is Provided in the Following

question 166

Multiple Choice

Rio Imports
Information from the financial statements is provided in the following table:
$\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\\text { Current liabilities } & \$ 460,000 & \$ 320,000 \\\text { Long-term liabilities } & 240,000 & 640,000 \\\text { Shareholders' equity } & 840,000 & 1,080,000 \\\text { Net cash flows from operating activities } & 160,000 & 102,000 \\\text { Interest and principal payments } & 24,000 & 16,000 \\\text { Net sales } & 950,000 & 900,000 \\\text { Net income } & 180,000 & 144,000 \\\text { Interest expense } & 17,000 & 23,000 \\\text { Income taxes } & 32,000 & 29,000 \\\text { Dividends paid to common shareholders } & 30,000 & 60,000\end{array}$
-Refer to the figure Rio Imports.What does the times interest earned ratio for Year 2 indicate?

• A) It increased, which indicates that the company's creditors will be pleased.
• B) It decreased, which indicates that the company has less cash to pay interest on its debt.
• C) It indicates a decline in the company's ability to pay its liabilities when they come due.
• D) It indicates that the company cannot meet its current year interest payments out of current year earnings.

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Definitions:

Kyphosis

A spinal disorder where there is an excessive outward curvature of the spine, causing hunching of the back.

Lordosis

A curvature of the spine that results in an exaggerated inward curve, primarily affecting the lower back, which can cause discomfort or stiffness.

Temporal Bone

A bone situated at the side and base of the skull, which houses structures of the ear and is part of the cranium.

Parietal Bone

One of the two bones forming the sides and roof of the cranium, part of the human skull.