E13-5 Computing a commonly Used Solvency Ratiop13 4. 13-5] According to the prod

Question

E13-5 Computing a commonly Used Solvency Ratiop13 4. 13-5] According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 8.1 percent between 2012 and 2013. Lets see whether these changes are refected in the income statement of Computer Tycoon Inc. for the year ended Deoember 31, 2013. 2013 2012 Sales Revenue Cost of Goods Sold Gross Pro Seling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense Net Income $120,000$150,000 79,500 0,000 50,000 70,500 575 ,000 38,000 700 2.500 S 8.800 $21.925 Required: 1. Compute the times interest earned ratios for 2013 and 2012 (Round your answers to 1 decimal place.) 12 2013 2. Does Computer Tycoon generate sufficient net income (before taxes and interost) to cover the cost of debt finanoing? O Yes No

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars 2013 2012 Times interest earned = EBIT/Int Income before income tax expense            11,300.00            28,925.00 Interest expense                  700.00                  575.00 EBIT            12,000.00            29,500.00 Times interest earned = EBIT/Int                    17.14                    51.30 Yes computer tycoon generate sufficient net income to cover the cost of debt financing

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