The income statement of Lot Corp. for the year ended December 31, Year 1, follows:

Additional Information:

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

2. Tax rate is 40%.

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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LOT CORPORATION Income Statement ($ thousands) For Year Ended December 31, Year 1 Sales $ 27,400 Undistributed income of less than 50%-owned affiliates. 400 Total revenue. 27,800 Less: Cost of goods sold (14,000) Gross profit... Selling and administrative expenses. Depreciation. Rental expense. Share of minority interest in consolidated incomele) Interest expense 13,800 $3,600 1,200 1,400 600 1,200 (8,000) Income before taxes 5,800 Income taxes Current. 2,000 Deferred 1,000 (3,000) Net income $ 2,800 Dividends Preferred stock 400 Common stock 1,000 (1,400) Earnings retained for the year. $ 1,400 (a Represents depreciation excluded from all other expense categories and includes $100 amortization of previously capitalized interest. Includes $400 of interest implicit in operating lease rental payments that should be considered as having financing characteristics. e These subsidiaries have fixed charges. M Interest expense includes: Interest incurred (except items below). Amortization of bond discount.. Interest portion of capitalized leases. Interest capitalized. $ 880 100 340 (120) $1,200