Response to the following problem:
The following data were taken from the financial statements of Starr Construction Inc. for December 31, 2012 and 2011:
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Dec. 31, 2012
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Dec.31,2011
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Accounts payable and other liabilities
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$ 1,700,000
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$2,325,000
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Current maturities of bonds payable
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500,000
|
500,000
|
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Serial bonds payable, 8%, issued 2008, due 2018
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5,000,000
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5,500,000
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Common stock, $5 par value
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250,000
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250,000
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|
Paid-in capital in excess of par
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1,500,000
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1,500,000
|
|
Retained earnings
|
10,250,000
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7,500,000
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The income before income tax was $2,816,000 and $2,640,000 for the years 2012 and 2011, respectively.
a. Determine the ratio of liabilities to stockholders' equity at the end of each year.
b. Determine the number of times the bond interest charges are earned during the year for both years.
c. What conclusions can be drawn from these data as to the company's ability to meet its currently maturing debts?