2014 2013
Interest expense $ 440,000 $ 400,000
Income before income tax expense 5,544,000 4,400,000
a. Determine the number of times interest charges are earned for 2014 and 2013. Round to one decimal place.
b. Is the number of times interest charges are earned improving or declining?
Answer:
a. Number of times interest charges earned:
2014:
2013:
$5,544,000 + $440,000
$440,000
$4,400,000 + $400,000
$400,000
= 13.6
= 12.0
b. The number of times interest charges are earned has increased from 12.0 in 2013 to
13.6 in 2014. The increase in this ratio increases debtholders’ confidence in the
company’s ability to make its interest payments.