Solution to BTN chapter 9 - Reporting in Action 1 BTN 9-1...

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Reporting in Action — BTN 9-1 1. Times interest earned (for fiscal periods) ($ millions) 2012 2011 2010 Net income .................................................. $41,733 $25,922 $14,013 Add income taxes ...................................... 14,030 8,283 4,527 Add interest expense (ASSUMED) ........... 1,000 1,000 1,000 Income before taxes and interest ............. $56,763 $35,205 $19,540 Times interest earned ratio ................... 56.76 a 35.21 b 19.54 c a $56,763/$1,000 b $35,205/$1,000 c $19,540/$1,000 Analysis comment : Assuming Apple had interest expense of $1,000 million each fiscal year, Apple’s risk of not being able to cover its interest expense became progressively lower over the three-year period as evidenced by its higher times interest earned. Further, Apple’s times interest earned ratio is higher than the industry average of 10 for each of its fiscal years. 2. Loyalty reward liabilities arise when a customer makes a purchase under a frequent purchase program. It is an estimated liability as the company does not know if and how much of the reward liability will be used. If there are different reward levels, rewards may be partially earned and could also expire depending on the terms of the program.
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