   # Averill Products Inc. reported the following on the company’s income statement in two recent years: a. Determine the times interest earned ratio for the current year and the prior year. Round to one decimal place. b. Is the number of times interest charges are earned improving or declining? ### Financial Accounting

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

#### Solutions

Chapter
Section ### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 14, Problem 9PEB
Textbook Problem
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## Averill Products Inc. reported the following on the company’s income statement in two recent years: a. Determine the times interest earned ratio for the current year and the prior year. Round to one decimal place. b. Is the number of times interest charges are earned improving or declining?

(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 $5,544,000, and interest expense is given as$440,000.

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

(b)

To determine

Compare Times-interest-earned ratio of the current year from the prior year

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