An auditor is concerned about short-term interest payment obligations due to a recent major bond issue of the client.A ratio the auditor should consider determining is _________.
A)debt-equity ratio
B)quick (acid test) ratio
C)times interest earned ratio
D)short term payment ratio

Question

Quizplus · Accepted Answer

The ratio the auditor should consider determining in this scenario is the times interest earned ratio. This ratio measures the ability of a company to meet its interest obligations with its current earnings before interest and taxes (EBIT). A low times interest earned ratio would indicate that the company may have difficulty meeting its interest payments on its debt, which is a concern for the auditor in this situation. The debt-equity ratio measures the proportion of a company's funding that comes from debt versus equity, but it may not provide insight into the company's current ability to meet interest payments. The quick (acid test) ratio measures a company's ability to pay its current liabilities with its most liquid assets, but it may not take into account the company's specific interest payment obligations. The short term payment ratio is not a commonly used ratio and may not provide useful information in this scenario.

An Auditor Is Concerned About Short-Term Interest Payment Obligations Due