Question

Question:The income statement for Vermont Communications follows. Assume VermontCommunications signed a 3-month, 3%, \(6,000 note on June 1, 2018, and that thiswas the only note payable for the company.

Vermont Communications
Income Statement
Year Ended July 31, 2018
Net Sales Revenue		\) 26,500
Cost of Goods Sold		12,200
Gross Profit		14,300
Operating Expenses:
Selling Expenses	\( 690
Administrative Expenses	1,550
Total Operating Expenses		2,240
Operating Income		12,060
Other Income and (Expenses):
Interest Expense	?
Total Other Income and (Expenses)		?
Net Income before Income Tax Expense		?
Income Tax Expense		2,410
Net Income		\) ?

Requirements

1. Fill in the missing information for Vermont’s year ended July 31, 2018, incomestatement. Round to the nearest dollar.

2. Compute the times-interest-earned ratio for the company. Round to twodecimals.

Short answer

Net Income:$9,620

Times Interest Earned Ratio:402 times

Step-by-step solution

Completing Income Statement

$$\begin{gathered} \mathbf{Interest}\mathbf{}\mathbf{Expense}\mathbf{=}\mathbf{Notes}\mathbf{}\mathbf{Payable}\mathbf{\times }\mathbf{Rate}\mathbf{\times }\frac{\mathbf{No}\mathbf{.}\mathbf{}\mathbf{of}\mathbf{}\mathbf{Months}}{\mathbf{12}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{3}}{\mathbf{100}}\mathbf{\times }\frac{\mathbf{2}}{\mathbf{12}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{30} \end{gathered}$$

Vermont Communications
Income Statement
Year Ended July 31, 2018
Net Sales Revenue		$ 26,500
Cost of Goods Sold		12,200
Gross Profit		14,300
Operating Expenses:
Selling Expenses	$ 690
Administrative Expenses	1,550
Total Operating Expenses		2,240
Operating Income		12,060
Other Income and (Expenses):
Interest Expense	30
Total Other Income and (Expenses)		30
Net Income before Income Tax Expense		12,030
Income Tax Expense		2,410
Net Income		$ 9,620

Computation of ratio

$\begin{array}{rcl}\mathbf{Times}\mathbf{}\mathbf{Interest}\mathbf{}\mathbf{Earned}\mathbf{}\mathbf{Ratio}& \mathbf{=}& \frac{\mathbf{Operating}\mathbf{}\mathbf{Income}}{\mathbf{Interest}\mathbf{}\mathbf{Expense}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \frac{\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{060}}{\mathbf{\$}\mathbf{30}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{402}\mathbf{}\mathbf{times}\end{array}$