Chapter 12, Problem 12.6CP

1.

To determine

Times-Interest-Earned ratio: It is the ratio that quantifies a business ability to pay interest expense. It is calculated as shown below:

$\begin{array}{l}\text{Times-interest-}\\ \text{earned ratio}\end{array}\}=\frac{\text{Income}\text{before}\text{income}\text{tax}+\text{Interest expense}}{\text{Interest expense}}$

To determine: Times-interest-earned ratio for the Incorporation S in Year 1, Year 2, and Year 3.

2.

To determine

To evaluate: these ratios for Incorporation S.