According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 8.1 percent between 2012 and 2013. Lets see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2013.

2013

2012

Sales Revenue

$

118,000

$

147,000

Cost of Goods Sold

69,000

78,700

Gross Profit

49,000

$

68,300

Selling, General, and Administrative Expenses

37,800

40,600

Interest Expense

680

565

Income before Income Tax Expense

10,520

27,135

Income Tax Expense

2,500

6,800

Net Income

$

8,020

$

20,335

1. Compute the times interest earned ratios for 2013 and 2012. (Round your answers to 1 decimal place.)

	Times Interest Earned
2012
2013

2. Does Computer Tycoon generate sufficient net income (before taxes and interest) to cover the cost of debt financing?

	Yes
	No