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Option 1: Ratio Analysis Exercises and Problems
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 AccountsIncrease (Decrease)Current AccountsIncrease (Decrease)Accounts Receivable $900.00Notes Payable to Bank-$200.00Inventories-$800.00Accounts Payable $700.00Dividend 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) $600.00Amortization of Bond Premium-$300.00Interest on Capitalized Leases $140.00Interest Incurred $440.00Less Interest Capitalized-$40.00Interest 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.
not specified