Use the information in E13-3 to complete the following requirement.

Required:

Compute the times interest earned ratios for 2016 and 2015. In your opinion, does Computer Tycoon generate sufficient net income (before taxes and interest) to cover the cost of debt financing?

Data From E13-3

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 2016. Let’s see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2016.

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2016 2015 $100,000 60,000 $120,000 71,500 Sales Revenue Cost of Goods Sold Gross Profit 40,000 48,500 Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense 36,000 37,000 500 475 3,500 11,025 1,000 5,000 Net Income $ 2,500 $ 6,025