   Chapter 14, Problem 14.16EX

Chapter
Section
Textbook Problem

# Times interest earnedlacouva Company reported the following on the company's income statement for two recent years:   Current Year Prior Year Interest expense $5,000,000$5,000,000 Income before income tax expense 3,500,000 6,000,000 a. Determine the times interest earned ratio for the current year and the prior year. Round to one decimal place.b. What conclusions can you draw?

(a)

To determine

Times-Interest-Earned ratio: It is the ratio that quantify a business ability to pay interest expense. It is calculated as shown below:

Times-interest-earned ratio}=Incomebeforeincometax+Interest expenseInterest expense

To calculate: Times-interest-earned ratio for the current year and the prior year.

Explanation

Calculate interest earned ratio for current year, if income before income tax is given as $3,500,000, and interest expense is given as$5,000,000.

Times-interest- earned ratio}=Incomebeforeincometax+Interest expenseInterest expense=$3,500,000+$5,000,000$5,000,000=1.7 Calculate interest earned ratio for prior year, if income before income tax is given as$6,000,000, and interest expense is given as \$5,000,000

(b)

To determine

To draw: The conclusion of Company’s times-interest-earned ratio

### Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

#### The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

#### Find more solutions based on key concepts 