Question
Must show EVERY step, I must know exactly how you got every number. Everything in the solution and work should be clear and easy to
Must show EVERY step, I must know exactly how you got every number. Everything in the solution and work should be clear and easy to understand. Any formulas used should be inlcuded. If you have any question please let me know, and please pay attention to each number (theres a lot of 0s). Thank you.
Problem: Use the net income statement for Summer Peebles, Inc., below, to do the following assigned problems.
1) Compute the following earnings coverage ratios:
a- Earnings to fixed charges.
b- Cash flow to fixed charges.
c- Earnings coverage of preferred dividends.
2) Analyze and interpret the earnings coverage ratios in question 1.
The Summer Peebles, Inc. Consolidated Income Statement ($ thousands) Year Ending December 31, 2015...
Sales= $15,000
Undistributed Income of Less Than 50%-Owned Affiliates= $300
Total Revenue= $15,300
Cost of Goods Sold= $7,000
Selling and Administrative Expenses= $2,000
Depreciation= $600
Rental Expense= $500
Share of Minority Interest in Consolidated Income= $200
Interest Expense= $400 (-$10,700)
Income Before Taxes= $4,600
Income Taxes Current= $900 Deferred= $400 (-$1,300)
Net Income= $3,300
Less Dividends Common Stock= $300 Preferred Stock= $400 (-$700)
Earnings Retained for the Year= $2,600
Additional Information:
1. The following changes occurred in current assets and current liabilities for 2015:
Current Accounts | Increase (Decrease) | Current Accounts | Increase (Decrease) |
Accounts Receivable | $900 | Notes Payable to Bank | ($200) |
Inventories | ($800) | Accounts Payable | $700 |
Dividend Payable | ($100) |
2. The effective tax rate is 40%.
3. Shares of minority interests in consolidated income do not have fixed charges.
4. Interest expenses include:
Interest Incurred (Except Items Below)= $600
Amortization of Bond Premium= (-$300)
Interest on Capitalized Leases= $140
Interest Incurred= $440
Less Interest Capitalized= (-$40)
Interest Expense= $400
5. Amortization of previously capitalized interest (included in depreciation) is $60.
6. Interest implicit in operating lease rental payment (included in rental expense) is $120.
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