BBQ Incorporated Has Provided You with the Following Selected Information

question 86

Multiple Choice

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.

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Definitions:

Contingent Liability

A potential financial obligation that may arise depending on the outcome of a future event.

Likelihood

The probability or chance of an event occurring.

Contingency

An uncertain future event that could affect financial performance or outcomes.

Employee Earnings Record

A cumulative record of each employee’s gross earnings, deductions, and net pay during the year.