BBQ Incorporated has provided you with the following selected information from 2020 and 2021: $\begin{array}{lrr}
&\underline{2021} & \underline{2020}\
\text { Interest expense } & \$ 15,500 & \$ 10,700 \
\text { Income tax expense } & 18,000 & 22,000 \
\text { Profit } & 68,000 & 60,000 \
\text { Total assets } & 523,000 & 497,000 \
\text { Total liabilities } & 285,000 & 234,000
\end{array}$ Which of the following best interprets BBQ's interest coverage ratio?
A) Interest coverage ratio has improved compared to prior year, increasing from 6.5 to 8.7.
B) Interest coverage ratio has improved compared to prior year, increasing from 4.4 to 5.6.
C) Interest coverage ratio has weakened compared to prior year, decreasing from 3.8 to 2.7.
D) Interest coverage ratio has weakened compared to prior year, decreasing from 5.2 to 4.8.

Question

Quizplus · Accepted Answer

Interest coverage ratio = Profit / Interest expense2021: 68,000 / 15,500 = 4.42020: 60,000 / 10,700 = 5.6The interest coverage ratio has improved from 4.4 to 5.6.

BBQ Incorporated Has Provided You with the Following Selected Information