Question

Selected financial statement data for KRJ Enterprises are listed below. Calculate the debt service coverage ratio. Present your answer rounded to two decimal places. e.g. 20.00.

Sales $12,866

Cost of goods sold 9,015

Cash operating expenses 1,969

Depreciation and amortization expense 327

Interest expense 171

Tax expense 232

Footnotes report that $165 of lease expenses are included in cash operating expenses, $21 of interest expenditures were capitalized during the year, and $296 of debt was repaid during the year.

Answer 1

DSCR ( Debt Service Coverage Ratio)

Step 1: Prepare Company Income Statement

Company KRJ Enterprises Income Statement
Assets	Amount $
Sales	12,866
Cost of Goods Sold	9,015
Gross Profit	=3851 [12,866-9,015]
Operating Expenses	1,969
Operating Income	= 1882 [3,851-1,969]
D&A Expense	327
Intrest Expense	171
Pre-Tax Profit	= 1384 [1,882-327-171]
Tax Expense	232
Net Income	= 1152 [1,384-232]

Step 2: Find the DSCR

Formula to calculate DSCR:

DSCR = Net Operating Income / Debt Service

Net Operating Income = 1,882

Debt Service (Intrest Expense) = 171

DSCR = Net Operating Income / Debt Service
DSCR = 1,882 / 171 = 11.01

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