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).

Transcribed Image Text:

KIMBERLY CORPORATION Consolidated Income Statement ( thousands) For Year Ended December 31, Year 1 $14,000 300 Sales Undistributed income of less than 50%-owned affiliates. ' Total revenue Cost of goods sold. Selling and administrative expenses .… Depreciation 14,300 $6,000 2,000 600 500 200 400 Share of minority interest in consolidated income Interest expense. Income before taxes (9,700) 4,600 Income taxes Current Deferred.. 900 400 (1,300) 3,300 Net income Less dividends Common stock. Preferred stock 300 400 (700) 2,600 Earnings retained for the year... Current accounts Accounts receivable. Inventories Dividend payable Increase (decrease) Current accounts Increase (decrease) $900 (800) (100) Notes payable to bank...$(200) Accounts payable . 700