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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.

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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please solve all the sub-division with detailed explanation.

The income statement of XYZ Corp. for the year ended December 31, Year 1, follows: 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 (14,000) Less: Cost of goods sold. Gross profit. Selling and administrative expenses. Depreciation. Rental expense Share of minority interest in consolidated income Interest expensel 13,800 $3,600 1,200 1.400 600 1,200 (8,000) Income before taxes 5,800 Income taxes Current . 2,000 1,000 Deferred.. (3,000) Net income. $ 2,800 Dividends Preferred stock 400 Common stock. 1,000 (1,400) Earnings retained for the year.. $ 1,400
Transcribed Image Text:The income statement of XYZ Corp. for the year ended December 31, Year 1, follows: 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 (14,000) Less: Cost of goods sold. Gross profit. Selling and administrative expenses. Depreciation. Rental expense Share of minority interest in consolidated income Interest expensel 13,800 $3,600 1,200 1.400 600 1,200 (8,000) Income before taxes 5,800 Income taxes Current . 2,000 1,000 Deferred.. (3,000) Net income. $ 2,800 Dividends Preferred stock 400 Common stock. 1,000 (1,400) Earnings retained for the year.. $ 1,400
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. d These subsidiaries have fxed charges. @ 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 Additional Information: 1. The following changes occurred in current assets and liabilities for Year 1: Current accounts Increase (decrease) Current accounts Increase (decrease) Accounts receivable. .. $(1,600) 2,000 Notes payable . Accounts payable... $ (400) 2,000 Inventories.. Dividend payable. 240 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).
Transcribed Image Text: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. d These subsidiaries have fxed charges. @ 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 Additional Information: 1. The following changes occurred in current assets and liabilities for Year 1: Current accounts Increase (decrease) Current accounts Increase (decrease) Accounts receivable. .. $(1,600) 2,000 Notes payable . Accounts payable... $ (400) 2,000 Inventories.. Dividend payable. 240 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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