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 Accounts Increase (Decrease) Current Accounts Increase (Decrease)
Accounts Receivable  $900.00 Notes Payable to Bank -$200.00
Inventories -$800.00 Accounts Payable  $700.00
Dividend 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)  $600.00
Amortization of Bond Premium -$300.00
Interest on Capitalized Leases  $140.00
Interest Incurred  $440.00
Less Interest Capitalized -$40.00
Interest 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.

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