Times interest earned Berry Company reported the following on the company's income statement in two recent...

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Times interest earned Berry Company reported the following on the company's income statement in two recent...

Times interest earned

Berry Company reported the following on the company's income statement in two recent years:

	Current Year	Prior Year
Interest expense	$419,000	$502,800
Income before income tax expense	5,656,500	5,832,480

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?

business accounting

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Answer 1

Answer #1

Solution

Current year	14.5
Prior year	12.6

Requirement 2

The times interest earned ratio improved.

The improvement is indicated by increase in times interest earned ratio.

Working

Times Interest Earned Ratio
Company	Choose Numerator:	/	Choose Denominator:	=	Times Interest Earned Ratio
	Income before interest and taxes	/	Interest expense	=	Times Interest Earned Ratio
Current year	$ 6,075,500*	/	$ 419,000	=	14.5	times
Prior year	$ 6,335,280	/	$ 502,800	=	13	times

*Income before taxes + Interest expense

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Answer 2

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