Use the net income statement for Summer Peebles, Inc., below, to do the following assigned problems.
Compute the following earnings coverage ratios:
Earnings to fixed charges.
Cash flow to fixed charges.
Earnings coverage of preferred dividends.
Analyze and interpret the earnings coverage ratios in (A).
Summer Peebles, Inc. Consolidated Income Statement ($ thousands)
Year Ending December 31, 2015
Sales $15,000.00
Undistributed Income of Less Than 50%-Owned Affiliates $300.00
Total Revenue $15,300.00
Cost of Goods Sold $7,000.00
Selling and Administrative Expenses $2,000.00
Depreciation $600.00
Rental Expense $500.00
Share of Minority Interest in Consolidated Income $200.00
Interest Expense $400.00 -$10,700.00
Income Before Taxes $4,600.00
Income Taxes
Current $900.00
Deferred $400.00 -$1,300.00
Net Income $3,300.00
Less Dividends
Common Stock $300.00
Preferred Stock $400.00 -$700.00
Earnings Retained for the Year $2,600.00
Additional Information:
The following changes occurred in current assets and current liabilities for 2015:
Current Accounts Increase (Decrease) Current Accounts Increase (Decrease)
Accounts Receivable $900.00 Notes Payable to Bank -$200.00
Inventories -$800.00 Accounts Payable $700.00
Dividend Payable -$100.00
The effective tax rate is 40%.
Shares of minority interests in consolidated income do not have fixed charges.
Interest expenses include:
Interest Incurred (Except Items Below) $600.00
Amortization of Bond Premium -$300.00
Interest on Capitalized Leases $140.00
Interest Incurred $440.00
Less Interest Capitalized -$40.00
Interest Expense $400.00
Amortization of previously capitalized interest (included in depreciation) is $60.
Interest implicit in operating lease rental payment (included in rental expense) is $120.
