Question

Times interest earned Loomis, Inc. reported the following on the company’s income statement in two recent...

Times interest earned Loomis, Inc. reported the following on the company’s income statement in two recent years: Current Year Prior Year Interest expense $231,000 $277,200 Income before income tax expense 2,887,500 3,381,840 a. Determine the times interest earned ratio for the current year and the 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

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Answer #1

Solution:

Times Interest Earned Ration = Earnings Before Interest and Taxes / Interest Expenses

Current Year

Prior Year

Earnings before interest and taxes (A)

$2,887,500

$3,381,840

Interest Expense (B)

$231,000

$277,200

Times Interest Earned Ratio (A/B)

12.50

12.20

Number of times interest charges are earned IMPROVING.

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