Assignment Financial Reporting & Analysis

Assignment Financial Reporting & Analysis - 1.Laura...

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1 1.Laura Bella Company reports the following statement of income: Operating Revenues $4,800 Costs and Expenses: Cost of Sales (2,000) Selling, Service, Administrative, and General Expense (1,500) Income Before Interest Expense and Income Taxes $1,300 Interest Expense (180) Income Before Income Taxes $1,120 Income Taxes (350) Net Income $ 770 Note: Depreciation expense totals $300; preferred dividends total $60; operating lease payments total $180. Assume that 1/3 of operating lease payments is for interest. Required: a. Compute the times interest earned. Times Interest Earned = Recurring Earnings, Excluding Interest Expense, tax Expense, Equity Earnings, and Non controlling Interest Interest Expense, Including Capitalized Interest Income before income taxes $1,120 Plus interest 180 Adjusted income $1,300 (A) Interest expense $ 180 (B) (A) $1,300/(B) $180 = 7.22 times
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2 b. Compute the fixed charge coverage. Fixed Charge Coverage = Recurring Earnings, Excluding Interest Expense, tax Expense, Equity Earnings, and Noncontrolling Interest + interest portion of rentals Interest Expense, Including Capitalized Interest + interest portion of rentals Income before income taxes $1,120 Plus interest 180 Adjusted income $1,300 1/3 of operating lease payments (1/3  $180) 60 $1,360 Interest expense $180 1/3 of operating lease payments 60 $240 Fixed charge coverage = $1,360 = 5.67 times $240
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3 2.The following information is computed from Fast Food Chain’s annual report for 2008. 2008 2007 Current assets $ 2,731,020 $ 2,364,916 Property and equipment, net 10,960,286 8,516,833 Intangible assets, at cost less applicable amortization 294,775 255,919 $13,986,081 $11,137,668 Current liabilities $ 3,168,123 $ 2,210,735 Deferred federal income taxes 160,000 26,000 Mortgage note payable 456,000 Stockholders' equity 10,201,958 8,900,933 $13,986,081 $11,137,668 Net sales $33,410,599 $25,804,285 Cost of goods sold (30,168,715) (23,159,745) Selling and administrative expense (2,000,000) (1,500,000) Interest expense (216,936) (39,456) Income tax expense (400,000) (300,000) Net income $ 624,948 $ 805,084 Note: One-third of the operating lease rental charge was $100,000 in 2010 and $50,000 in 2009. Capitalized interest totaled $30,000 in 2010 and $20,000 in 2009.
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4 Required: a. Based on the above data for both years, compute: 1. Times Interest Earned = Recurring Earnings, Excluding Interest Expense, tax Expense, Equity Earnings, and Non controlling Interest Interest Expense, Including Capitalized Interest 2008 2007 Net Sales $ 33,410,599 $25,804,285 Less Cost of Goods Sold (30,168,715) 23,159,745) Selling and Administrative (2,000,000) (1,500,000) (A) $ 1,241,884 $ 1,144,540 Interest Expense $ 216,936 $ 39,456 Capitalized Interest 30,000 20,000 Total Interest (B) $ 246,936 $ 59,456 (A)/(B) 5.03 times 19.25 times 2. Fixed Charge Interest = Recurring Earnings, Excluding Interest Expense, tax Expense, Equity Earnings, and Noncontrolling Interest + interest portion of rentals
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