Loose Leaf for Fundamental Accounting Principles
Loose Leaf for Fundamental Accounting Principles
23rd Edition
ISBN: 9781259687709
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 11, Problem 14E
To determine

Times interest earned ratio: It tells the ability of a company to cover up its interest expenses of debt.

Formula:

EBIT=Netincome+interestexpenses+taxesTimesinterestearnedratio=EBITInterestexpenses

To determine: strongest Company to cover interest payment

Expert Solution & Answer
Check Mark

Answer to Problem 14E

Solution: Company D has the strongest ability to cover interest payment. Its times earned interest ratio is 27.07 times.

Explanation of Solution

A)

EBIT=$115,000+$44,000+$35,000=$194,000

Timesinterestcovered=$194,00044,000 =4.41times

B) EBIT=$110,000+$16,000+$50,000=$176,000

Timesinterestcovered=$176,00016,000 =11.0times

C)

EBIT=$100,000+$12,000+$70,000=$182,000

Timesinterestcovered=$182,00012,000 =15.17times

D)

EBIT=$235,000+$14,000+$130,000=$379,000

Timesinterestcovered=$379,00014,000 =27.07times

E)

EBIT=$59,000+$14,000+$30,000=$103,000

Timesinterestcovered=$103,00014,000 =7.36times

F)

EBIT=($5,000)+$10,000+$0=$5,000

Timesinterestcovered=$5,00010,000 =0.5times

Conclusion
With the times earned ratio of 27.07 times, the company D is the strongest company to cover up its interest obligations.

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Chapter 11 Solutions

Loose Leaf for Fundamental Accounting Principles

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