Google E13-5 Computing a Commonly Used Solvency Ratio [LO 13-4, 13-5 According t

Question

Google E13-5 Computing a Commonly Used Solvency Ratio [LO 13-4, 13-5 According to the producer price index data Let's see whether these changes are reflected in the income statement of base maintsined by the Bureau of Labor Statistics, the average cost of computer equipment felil 8.1 percen Computer Tycoon Inc. for the year ended December 31, 2013 betwoen 2012 and 2013 Sales Revenue Cost of Goods Sold Gross Proft Seling. General., and Administrntive Expenses $107,000 130500 4.300 3,500 56,200 36,700 38,400 3,500 nterest Expense Income before Income Tax Expense Income Tax Expense 1.5005700 4,730 11 590 Required 1. Compute the times interest eamed ratios for 2013 and 2012 (Round your answers to 1 decimal place) 2. Does Computer Tycoon generale sufficient net income (betone taxes and interest) to cover the cost of debt financing?

Explanation / Answer

1) Times interest earned ratio = Income before interest and tax/interest expense

2012 = (43500-36700)/570 = 11.9

2013 = (56200-38400)/510 = 34.9

2) Yes, sufficient net incoem before taxes and interest to cover the cost of debt financing.

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