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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 Sales. $27,400 Undistributed income of less than 50%-owned affiliates.. 400 Total revenue... 27,800 Less: Cost of goods sold... (14,000) Gross profit....... 13,800 Selling and administrative expenses. $3,600 Depreciation... 1,200 Rental expense. 1,400 Share of minority interest in consolidated income 600 Interest expenseios 1,200 (8,000) Income before taxes 5,800 Income taxes Current 2,000 Deferred. 1,000 (3,000) Net income $ 2,800 Dividends Preferred stock 400 Common stock.. 1,000 (1,400) Earnings retained for the year... $ 1,400 la Represents depreciation excluded from all other expense categories and includes $100 amortization of previously capitalized interest. Includes $400 of interest implicit in operating lease rental payments that should be considered as having financing characteristics. I These subsidiaries have fixed charges. lide interest expense includes: Interest incurred (except items below). $ 880 Amortization of bond discount... 100 Interest portion of capitalized leases 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.. $(1,600) Notes payable. ..$ (400) Inventories.... 2,000 Accounts payable.. 2,000 Dividend payable. 240 340 2. Tax rate is 40%. 4 Required: a. Compute the following earnings coverage ratios: (a1) Earnings to fixed charges. (a2) Cash flow to fixed charges. (23) Earnings coverage of preferred dividends. b. Analyze and interpret the earnings coverage ratios in (a)