EXERCISE 9–1 The following information is relevant for Questions 1 and 2:

Austin Corporation’s Year 8 financial statement notes include the following information:

a. Austin recently entered into operating leases with total future payments of $40 million that equal a discounted present value of $20 million.

b. Long-term assets include held-to-maturity debt securities carried at their amortized cost of $10 million. Fair market value of these securities is $12 million.

c. Austin guarantees a $5 million bond issue, due in Year 13. The bonds are issued by Healey, a nonconsolidated 30%-owned affiliate.

After analysis, you decide to adjust Austin’s balance sheet for each of the above three items.

1. Among the effects of these adjustments for the times interest earned coverage ratio is (choose one of the following):

a. Lease capitalization increases this ratio.

b. Lease capitalization decreases this ratio.

c. Recognizing the debt guarantee decreases this ratio.

d. Held-to-maturity debt securities adjustment increases this ratio.