Question

The income statement of Kimberly Corporation for the year ended December 31, Year 1, is reproduced below:


Additional Information:
1. The following changes occurred in current assets and current liabilities for Year 1:


2. The effective tax rate is 40%.
3. Shares of minority interests in consolidated income do not have fixed charges.
4. Interest expense includes:
Interest incurred (except items below) . . . . . . . . . $ 600
Amortization of bond premium . . . . . . . . . . . . . . . (300)
Interest on capitalized leases. . . . . . . . . . . . . . . . 140
Interest incurred. . . . . . . . . . . . . . . . . . . . . . . . . . 440
Less interest capitalized. . . . . . . . . . . . . . . . . . . . (40)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . $ 400
5. Amortization of previously capitalized interest (included in depreciation) is $60.
6. Interest implicit in operating lease rental payment (included in rental expense) is $120.

Required:
a. Compute the following earnings coverage ratios:
(1) Earnings to fixed charges.
(2) Cash flow to fixed charges.
(3) Earnings coverage of preferred dividends.
b. Analyze and interpret the earnings coverage ratios in(a).


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  • CreatedJanuary 22, 2015
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