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E13-5 Computing a commonly used Solvency Ratio [LO 13-4, LO 13-5) According to the producer price index database maintained by the Bureau of Labor Statistics,
E13-5 Computing a commonly used Solvency Ratio [LO 13-4, LO 13-5) 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. Sales Revenue Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense 2016 $120,000 79, eee 50,00 38,000 7ee 11,300 2,500 $ 8, 80e 2015 $150, eee 79,500 70,5ee 41, see 575 28,925 7, see $ 21,925 Net Income Required: 1. Compute the times Interest earned ratios for 2016 and 2015. (Round your answers to 1 decimal place.) Times Interest Earned 2015 2016 2. Does Computer Tycoon generate sufficient net income in both years (before taxes and Interest) to cover the cost of debt financing? Yes O No
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