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Copy of Answer 7-3

Copy of Answer 7-3 - Where as Income before income taxes...

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If you want the formulas and any calculations, select the corresponding cell and press F2(Function Key on key board), It will show all calculations and formulas Automatically Question: P7-3 Sherwill's statement of consolidated income is as follows: Net Sales $658 Other Income 8 666 Cost and expenses Cost of products sold 418 Selling, general, and administrative expenses 196 Interest 16 630 Income before income taxes and extraordinary charges 36 Income Taxes 18 Income before extraordinary 18 images Extraordinary charge - losses on tornado damage (net) 4 Net Income $14 Note: Depreciation expense totals $200; operating lease payments total $150; and preferred dividends total $50. Assume that one-third of operating lease payments is for interest. Required: A. Compute the times interest earned. Solution; Computation of the Times Interest Earned Times interest Earned = Recurring Earnings, Excluding Interest Expense, Tax Expense, Equity Earning, and Minority Earnings Interest Expense, Including Capitalized Interest
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Unformatted text preview: Where as Income before income taxes and extraordinary charges $36 Plus interest $16 $52 Interest expense $16 Times interest Earned = $52 $16 Times interest Earned = 3.25 Times per year Hence the Times interest Earned is 3.25 Times per year B. Compuate the fixed charge covereage. Solution: Computation of the fixed charge covereage Fixed charge covereage Recurring Earnings, Excluding Interest Expense, Tax Expense, Equity Earnings and Minority Earnings + Interest Portion of Rentals Where as Adjusted income from part (a) $52 1/3 of operating lease payments $50 Adjusted income, including rentals $102 Interest expense $16 1/3 of operating lease payments $50 (2) Adjusted interest expense $66 Fixed charge covereage $102 $66 Fixed charge covereage $1.55 Times per year Hence the Fixed charge covereage is $1.55 Times per year Interest Expense, Including Capitalized Interest + Interest Portion of Rentals...
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