Times interest earned Berry Company reported the following o

Times interest earned Berry Company reported the following on the company\'s income statement in two recent years: Current Year Prior Year Interest expense $320,000 $300,000 Income before income tax expense 3,200,000 3,600,000 a. Determine the number of times interest charges are earned current year and the prior year.

Solution

Number of times interest charges are earned = (Income before income tax + Interest expense) / Interest expense

Current year:

Number of times interest charges are earned = ($3,200,000 + $320,000) / $320,000 = 11.0

Prior Year:

Number of times interest charges are earned = ($3,600,000 + $300,000) / $300,000 = 13.0