Answer:
1.
a. 3.3 times
b. 4.16 times
c. 25.67 times
d. 4.84 times
e. 9.63 times
f. 0.54 times
2.
Company c.
Explanation:
1.
Net Income (Loss) Interest Expense Income Taxes Income before I&T
a. $170,000 $91,800 $42,500 $304,300
b. $164,600 $70,778 $59,256 $294,634
c. $173,100 $10,386 $83,088 $266,574
d. $144,500 $53,465 $60,690 $258,655
e. $110,500 $17,680 $41,990 $170,170
f. ($47,600 ) $102,816 $0 $55,216
Times Interest Earned
Times interest earned ratio measures the ability of the business to pay the interest on its debt. It calculates the times that company can pay its current interested payment from earning.
Times interest earned ratio = Earning before interest and tax / interest tax
a. $304,300 / $91,800 = 3.3
b. $294,634 / $70,778 = 4.16
c. $266,574 / $10,386 = 25.67
d. $258,655 / $53,465 = 4.84
e. $170,170 / $17,680 = 9.63
f. $55,216 / $102,816 = 0.54
2.
Company c. has strongest ability to pay interest expense as it comes due because it has enough earning against its interest expense. It can pay 25.67 times of current interest from current earning.
