Use the following information from separate companies a throughf Interest Expens

Question

Use the following information from separate companies a throughf Interest Expense $41,070 16,896 5,705 38,684 10,101 63,092 Income Taxes Net Income (Loss) 111,000 105,600 114,100 94,350 72,150 (31,080) $27,750 38,016 54,768 39,627 27,417 Compute times interest earned Times Interest Earned Ratio Choose Denominator: Ratio Company Choose Numerator: imes imes imes imes imes imes Which company indicates the strongest ability to pay interest expense as it comes due? O Company a O Company b O Company c O Company d O Company e O Company f

Explanation / Answer

Company c has the strongest ability to pay interest expense.

Interest Earned Ratio Company Net income/ (loss) Interest expense Ratio a $111,000 / $41,070 = 2.70 times b $105,600 / $16,896 = 6.25 times c $114,100 / $5,705 = 20 times d $94,350 / $38,684 = 2.44 times e $72,150 / $10,101 = 7.14 times f $(31,080) / $63,092 = -0.49 times

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