Sherwill’s statement of consolidated income is as follows:
Net sales …………………………………………………….$658
Other income ……………………………………………….. 8
666
Costs 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 charge …………………………… 18
Extraordinary charge—losses on tornado damage (net) ………. 4
Net income …………………………………………………….. $ 14
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.
b. Compute the fixed charge coverage.