Question

# Exercise 3-17 (Algo) Calculating ratios; Bargain Deal [LO3-8] Bargain Deal, Inc., is a leading retailer specializing...

Exercise 3-17 (Algo) Calculating ratios; Bargain Deal [LO3-8]

Bargain Deal, Inc., is a leading retailer specializing in consumer electronics. A condensed income statement and balance sheet for the fiscal year ended January 28, 2017, are shown below.

 Bargain Deal, Inc. Balance Sheet At January 28, 2017 (\$ in millions) Assets Current assets: Cash and cash equivalents \$ 2,146 Short-term investments 1,322 Accounts receivable (net) 1,247 Inventory 5,068 Other current assets 426 Total current assets 10,209 Long-term assets 3,718 Total assets \$ 13,927 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable \$ 5,300 Other current liabilities 4,175 Total current liabilities 9,475 Long-term liabilities 2,250 Shareholders’ equity 2,202 Total liabilities and shareholders’ equity \$ 13,927
 Bargain Deal, Inc. Income Statement For the Year Ended January 28, 2017 (\$ in millions) Revenues \$ 39,613 Costs and expenses 38,170 Operating income 1,443 Other income (expense)* (82 ) Income before income taxes 1,361 Income tax expense 758 Net income \$ 603

*Includes \$233 of interest expense.

Required:
1-a. Calculate the current ratio for Bargain Deal for its fiscal year ended January 28, 2017.
1-b. Calculate the acid-test ratio for Bargain Deal for its fiscal year ended January 28, 2017.
1-c. Calculate the debt to equity ratio for Bargain Deal for its fiscal year ended January 28, 2017.
1-d. Calculate the times interest earned ratio for Bargain Deal for its fiscal year ended January 28, 2017.

Answer-1-a)- Current Ratio= Current Assets/ Current Liabilities

= \$10209/\$9475

= 1.08 times

1-b)- Acid-test (Quick ratio)= (Current assets – Inventory - Prepaid expenses)/Current Liabilities

= (\$10209 - \$5068 - \$0)/\$9475

= \$5141/\$9475

= 0.54 times

1-c)- Debt to equity ratio= Total liabilities/Total stockholder’s equity

= (\$9475 + \$2250)/\$2202

= \$11725/\$2202

= 5.32 times

1-d)- Times interest earned ratio= Income before Interest & Taxes(EBIT)/Interest expenses

= (\$603+\$233+\$758)/\$233

= \$1594/\$233

= 6.84 times

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