5- (25 pts.) 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 $27,400 400 27,800 (14,000) 13,800 Sales Undistributed income of less than 50%-owned affiliates Total revenue... Less: Cost of goods sold.. Gross profit..... Selling and administrative expenses. Depreciation Rental expense Share of minority interest in consolidated income Interest expenselen Income before taxes Income taxes Current Deferred Net income $3.600 1,200 1.400 600 1,200 (8,000) 5,800 2,000 1,000 (3.000) $ 2,800 Dividends Preferred stock Common stock Earnings retained for the year. 400 1,000 (1.400) $ 1,400 Rannesents de relation aller fr 100 Common stock. 1.000 (1,400) Earnings retained for the year. $ 1,400 a Represents depreciation excluded from all other expense categories and includes $100 a mortization of previously capitalized interest W Includes $400 of interest implicit in operating lease rental payments that should be considered as having financing characteristics These subsidiaries have fixed charges. 18 Interest expense includes: Interest incurred (except items below). $ 880 Amortization of bond discount. Interest portion of capitalized leases... 340 Interest capitalized... (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....... Notes payable ....... $ (400) Inventories.... Accounts payable...... 2,000 Dividend payable. 240 ... $(1,600) 2,000 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)