question archive Times interest earned Berry Company reported the following on the company's income statement in two recent years: Current Year Prior Year Interest expense $274,000 $301,400 Income before income tax expense 3,178,400 3,827,780 a
Times interest earned Berry Company reported the following on the company's income statement in two recent years: Current Year Prior Year Interest expense $274,000 $301,400 Income before income tax expense 3,178,400 3,827,780 a
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Times interest earned Berry Company reported the following on the company's income statement in two recent years: Current Year Prior Year Interest expense $274,000 $301,400 Income before income tax expense 3,178,400 3,827,780 a. Determine the number of times interest charges were earned for current Year and Prior Year. Round to one decimal place. Current Year Prior Year b. Is the number of times interest charges are earned improving or declining? Improving Declining
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A.
Number of times ínterest charges or Time ínterest earned ratio = (income before income tax + ínterest)/ínterest expenses
Current year ratio = (3178400+274000)/274000
=12.6
Prior year ratio = (3827780+301400)/301400
=13.7
Answer a is
Current year : 12.6
Prior year : 13.7
B.
Higher time ínterest earned ratio shows higher ratio of profits that can be paid for ínterest expenses.
Higher ratio means higher capacity to pay for ínterest dues. Lower ratio means lower financial capacity to pay for ínterest dues
As Current year ratio is lower than prior year, so times ínterest earned ratio is declining
Answer is declining
