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Shown here are condensed income statements for two different companies (assume no income taxes).

Shown here are condensed income statements for two different companies (assume no income taxes).

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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Shown here are condensed income statements for two different companies (assume no income taxes). Blanca Company Sales Variable expenses (80%) Income before interest Interest expense (fixed) Net income Negra Company Sales Variable expenses (60%) Income before interest Interest expense (fixed) Net income $ 2,250,000 1,800,000 450,000 80,000 $ 370,000 $ 2,250,000 1,350,000 900,000 530,000 $ 370,000 1. Compute times interest earned for Blanca Company and Negra Company. 2. What happens to each company's net income if sales decrease by 40%? 3. Which company would have a greater ability to pay interest expense if sales were to decrease?
Transcribed Image Text:Shown here are condensed income statements for two different companies (assume no income taxes). Blanca Company Sales Variable expenses (80%) Income before interest Interest expense (fixed) Net income Negra Company Sales Variable expenses (60%) Income before interest Interest expense (fixed) Net income $ 2,250,000 1,800,000 450,000 80,000 $ 370,000 $ 2,250,000 1,350,000 900,000 530,000 $ 370,000 1. Compute times interest earned for Blanca Company and Negra Company. 2. What happens to each company's net income if sales decrease by 40%? 3. Which company would have a greater ability to pay interest expense if sales were to decrease?
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