According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipmen fell 3.8 percent between January and December 2018. Let's see whether these changes are reflected in the income statement of Wizard Computers for the year ended December 31, 2018. Sales Revenue Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense Net Income 2018 $ 106,000 63,000 43,000 36,600 560 5,840 1,500 $4,340 2017 $ 129,000 73,900 55,100 38,200 505 16,395 5,600 $ 10,795 Required: 1. Compute the times interest earned ratios for 2018 and 2017. 2. Does Wizard generate sufficient net income in both years (before taxes and interest) to cover the cost of debt financing?
According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipmen fell 3.8 percent between January and December 2018. Let's see whether these changes are reflected in the income statement of Wizard Computers for the year ended December 31, 2018. Sales Revenue Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense Net Income 2018 $ 106,000 63,000 43,000 36,600 560 5,840 1,500 $4,340 2017 $ 129,000 73,900 55,100 38,200 505 16,395 5,600 $ 10,795 Required: 1. Compute the times interest earned ratios for 2018 and 2017. 2. Does Wizard generate sufficient net income in both years (before taxes and interest) to cover the cost of debt financing?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment
fell 3.8 percent between January and December 2018. Let's see whether these changes are reflected in the income statement of
Wizard Computers for the year ended December 31, 2018.
Sales Revenue
Cost of Goods Sold
Gross Profit
Selling, General, and Administrative Expenses
Interest Expense
Income before Income Tax Expense
Income Tax Expense
Net Income
2018
$ 106,000
63,000
43,000
36,600
560
5,840
1,500
$ 4,340
2017
$ 129,000
73,900
55,100
38,200
505
16,395
5,600
$ 10,795
Required:
1. Compute the times interest earned ratios for 2018 and 2017.
2. Does Wizard generate sufficient net income in both years (before taxes and interest) to cover the cost of debt financing?
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