Question : 6) The times-interest-earned ratios of Benin Inc. 20.56 and 7.35 : 1412269

 

6) The times-interest-earned ratios of Benin Inc. are 20.56 and 7.35 for the years 2013 and 2014, respectively. Which of the following can be the possible reason for such a change?

A) Benin Inc. incurred less debt specifically in its revolving line of credit.

B) Benin Inc. incurred more debt specifically in its revolving line of credit.

C) Benin Inc. paid less interest in its revolving line of credit.

D) Benin Inc.'s debt-paying ability increased.

 

7) The times-interest-earned ratios of four companies are given below:

 

Forge Corp.	8.9
Fellow Inc.	9.2
Stacy Corp.	6.7
Bennett Inc.	13.5

 

Which of the above companies has the highest debt-paying ability?

A) Forge Corp.

B) Fellow Inc.

C) Stacy Corp.

D) Bennett Inc.

8) Which of the following statements about the times-interest-earned ratio is true?

A) A lower ratio indicates a higher debt paying ability.

B) Debt reduction leads to an increase in interest expense.

C) The times-interest-earned ratio is also called the interest-coverage ratio.

D) The times-interest-earned ratio is calculated by dividing gross income by interest expense.

 

9) The information related to Stereo Music Inc. is given below:

 

Year ended DecemberYear ended December

                              31, 2012                31, 2013

Net Income$81,510$210,570

Income Tax Expense55,910103,505

Interest Expense6,59559,505

 

Calculate the times-interest-earned ratio for each year and also state the percentage change in the ratio.

 

10) Ferro Inc. signed a 200-day, 5%, $5,000 note on April 1, 2014, and that this was the only note payable for the company. Calculate the times-interest-earned ratio of Ferro Inc. if its operating income for the year ending December 31, 2014, amounts to $4,300. Assume a tax rate of 20%.