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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
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 2018. Lets see whether these changes are reflected in the income statement of Wizard Computers for the year ended December 31, 2018. 2018 2017 Sales Revenue $ 114,000 $ 141,000 Cost of Goods Sold 67,000 77,100 Gross Profit 47,000 63,900 Selling, General, and Administrative Expenses 37,400 39,800 Interest Expense 640 545 Income before Income Tax Expense 8,960 23,555 Income Tax Expense 2,000 6,400 Net Income $ 6,960 $ 17,155 Required: Compute the times interest earned ratios for 2018 and 2017. Does Wizard generate sufficient net income in both years (before taxes and interest) to cover the cost of debt financing
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