The times-interest-earned ratios of Benin,Inc.are 20.56 and 7.35 for 2016 and 2017,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.

Question

Quizplus · Accepted Answer

The times-interest-earned ratio measures the ability of a company to meet its interest payments on its debt obligations. A higher ratio indicates a better ability to meet interest payments. The decrease in the ratio from 2016 to 2017 suggests that Benin, Inc. incurred more debt, specifically in its revolving line of credit, which is reflected in a decrease in its ability to meet interest payments. Option A and C do not explain the decrease in the ratio, and D is opposite to the inference drawn from the decrease in the ratio. Therefore, option B is the best choice.

The Times-Interest-Earned Ratios of Benin,Inc