Exercise $2$ Possibilities Unlimited Company reports the following consolidated statement of income:

Note: Depreciation expense totals $$300$; operating lease payments total $$225$; and preferred dividends total $$75.$ Assume that onethird of operating lease payments is for interest.

Required:

a$.$ Compute the times interest earned. Comment on your findings

b$.$ Compute the fixed charge coverage. Comment on your findings

Times Interest Earned $=$

b$.$ Compute the fixed charge coverage

Fixed Charge Coverage $=$

Recurring Earnings, Excluding Interest Expense, Tax Expense, Equity Earnings, and Minority Earnings

Interest Expense, Including Capitalized Interest

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Recurring Earnings, Excluding Interest Expense, Tax Expense, Equity Earnings, and Minority Earnings $+$ Interest Portion of Rentals

Interest Expense, Including Capitalized Interest $+$ Interest Portion of Rentals