11-NUMBER OF TIMES PREFERRED DIVIDENDS EARNED 10-NUMBER OF TIMES INTEREST CHARGE

Question

11-NUMBER OF TIMES PREFERRED DIVIDENDS EARNED

10-NUMBER OF TIMES INTEREST CHARGES EARNED

P9-4 Nineteen measures of liquidity, solvency, and profitability The comparative financial statements of Tec Solutions Inc. are as follows. The of Tec Solutions Inc. common stock was $89.75 on December 31, 20Y8. TEC SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31,20Y8 and 20Y7 20Y8 20Y7 Sales Sales returns and allowances Net sales Cost of goods sold Gross profit Selling expenses Administrative expenses Total operating expenses Income from operations Other income $1,940,000 15,000 $1,925,000 780,000 $1,145,000 385,000 215,000 600,000 $ 545,000 25,000 570,000 115,000 455,000 91,000 $1,450,000 10,000 $1,440,000 575,000 $ 865,000 $ 365,000 200,000 565,000 $ 300,000 43,000 Other expense (interest) Income before income tax Income tax expense Net income $ 343,000 75,000 $ 268,000 40,000 364,000

Explanation / Answer

10) NUMBER OF TIMES INTEREST CHARGES EARNED = Earning before interest and tax / interest expense

= 570000 / 115000

= 4.96

11) NUMBER OF TIMES PREFERRED DIVIDENDS EARNED = net income/ preferred dividend payout

   = 364000 / 5000

= 72.8

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