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:

Ethical Conduct

Making decisions and taking actions aligned with moral principles and standards of behavior in both personal and professional settings.

Exchange Relationship

The interaction between two parties where goods, services, or ideas are exchanged, often characterized by mutual benefit.

Competitive Behavior

Refers to actions of companies that are aimed at gaining an advantage over rivals, often through strategies like pricing, product introduction, and advertising.

Socializing Force

Influences that shape individuals' behaviors, norms, and values through interactions within society and cultural environments.