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: 

(a1) Earnings to fixed charges. 

(a2) Cash flow to fixed charges. 

(a3) Earnings coverage of preferred dividends. 

b. Analyze and interpret the earnings coverage ratios in (a). 

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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. Depreciatione.. Rental expense). Share of minority interest in consolidated income. 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 . Net income. 1,000 (3,000) $ 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. t Includes $400 of interest implicit in operating lease rental payments that should be considered as having financing characteristics. (a These subsidiaries have fixed charges. (@ Interest expense includes: Interest incurred (except items below). $ 880 Amortization of bond discount. 100 Interest portion of capitalized leases. Interest capitalized. 340 (120) $1,200 Income Statement ($ 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. Depreciatione.. Rental expense). Share of minority interest in consolidated income. 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 . Net income. 1,000 (3,000) $ 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. t Includes $400 of interest implicit in operating lease rental payments that should be considered as having financing characteristics. (a These subsidiaries have fixed charges. (@ Interest expense includes: Interest incurred (except items below). $ 880 Amortization of bond discount. 100 Interest portion of capitalized leases. Interest capitalized. 340 (120) $1,200

Answer rating: 100% (QA)

a1 Earning to Fixed Charge ratio EBIT FCBTIFCBT I EBT Earning Before taxes FCBTpor Fixed charge befo... View the full answer