5- (25 pts.) The income statement of XYZ Corp. for the year ended December 31, Year 1, follows: Income Statement (S thousands) For Year Ended December 31, Year 1 $27,400 400 27,800 (14,000) 13.800 Sales Undistributed income of less than 50%-owned affiliates......... Total revenue Less: Cost of goods sold Gross profit Selling and administrative expenses. $3,600 Depreciation 1.200 Rental expense 1,400 Share of minority interest in consolidated income 600 Interest expenseln 1,200 Income before taxes (8,000) 5,800 Income taxes Current Deferred 2,000 1.000 (3.000) Net income $ 2,800 400 Dividends Preferred stock Common stock Earnings retained for the year. 1,000 (1.400) $ 1,400 Represents depreciation excluded from all other expense categories and includes $100 amortization of previously capitalized interest Includes $100 of interest implicit in operating lease rental payments that should be considered as having financing characteristics These subsidiaries have fed charges. Interest expense includes Interest incurred (except items below) $ 880 Amortization of bond discount 100 Interest portion of capitalized leases 340 Interest capitalized (120) $1,200 Additional Information: 1. The following changes occurred in current assets and liabilities for Year 1: Increase (decrease) Current accounts Accounts receivable..... Increase (decrease) $4,600) Current accounts Notes payable $ (400) W Common stock.. 400 1,000 Earnings retained for the year. (1,400) $ 1,400 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 These subsidiaries have fried charges. Interest expense includes: Interest incurred (except items below) $ 880 Amortization of bond discount 100 Interest portion of capitalized leases 340 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 Inventories Dividend payable $(1.600) 2,000 240 Notes payable Accounts payable $ (400) 2,000 2. Tax rate is 40% BUST321-Financial Accounting Analysis Fall 2020/2021 Required: o. Compute the following earnings coverage ratios: (al) Earnings to fixed charges. (a2) Cash flow to fixed charges. (a3) Earnings coverage of preferred dividends. b. Analyze and interpret the earnings coverage ratios in (a). 5- (25 pts.) The income statement of XYZ Corp. for the year ended December 31, Year 1, follows: Income Statement (S thousands) For Year Ended December 31, Year 1 $27,400 400 27,800 (14,000) 13.800 Sales Undistributed income of less than 50%-owned affiliates......... Total revenue Less: Cost of goods sold Gross profit Selling and administrative expenses. $3,600 Depreciation 1.200 Rental expense 1,400 Share of minority interest in consolidated income 600 Interest expenseln 1,200 Income before taxes (8,000) 5,800 Income taxes Current Deferred 2,000 1.000 (3.000) Net income $ 2,800 400 Dividends Preferred stock Common stock Earnings retained for the year. 1,000 (1.400) $ 1,400 Represents depreciation excluded from all other expense categories and includes $100 amortization of previously capitalized interest Includes $100 of interest implicit in operating lease rental payments that should be considered as having financing characteristics These subsidiaries have fed charges. Interest expense includes Interest incurred (except items below) $ 880 Amortization of bond discount 100 Interest portion of capitalized leases 340 Interest capitalized (120) $1,200 Additional Information: 1. The following changes occurred in current assets and liabilities for Year 1: Increase (decrease) Current accounts Accounts receivable..... Increase (decrease) $4,600) Current accounts Notes payable $ (400) W Common stock.. 400 1,000 Earnings retained for the year. (1,400) $ 1,400 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 These subsidiaries have fried charges. Interest expense includes: Interest incurred (except items below) $ 880 Amortization of bond discount 100 Interest portion of capitalized leases 340 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 Inventories Dividend payable $(1.600) 2,000 240 Notes payable Accounts payable $ (400) 2,000 2. Tax rate is 40% BUST321-Financial Accounting Analysis Fall 2020/2021 Required: o. Compute the following earnings coverage ratios: (al) Earnings to fixed charges. (a2) Cash flow to fixed charges. (a3) Earnings coverage of preferred dividends. b. Analyze and interpret the earnings coverage ratios in (a)
