# Iacouva Company reported the following on the company’s income statement for two recent years: 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?

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 14, Problem 16E
Textbook Problem
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## Iacouva Company reported the following on the company’s income statement for two recent years: 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

Calculate times-interest-earned ratio for the current year and the prior year.

### Explanation of Solution

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

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

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<

(b)

To determine

Draw the conclusion of Company’s times-interest-earned ratio.

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