Question

The following data were taken recent annual reports of Southwest Airlines, which operates a low-fare airline service to 50 cities in the United states:

Determine the number of times interest charges are earned for the current and preceding years.

(Round to one decimal place.)

Current year

Interest Expense $200,000,000
Income before income taxes $845,000,000
Determine the number of times interest charges are earned for the current year

a. 5.6

b. 5.2

c. 5.8

d. 4.1

Answer 1

b. 5.2

Step-by-step explanation:

First we need to Calculate the Income before interest and taxes,

so we have to add the interest expense to get EBIT

then we calculate the TIE Times Interest Earned

`TIE = (EBIT)/(interest \: expense) \\\\EBIT = EBT + Interest \: expense\\\\EBIT = 845,000,000 + 200,000,000\\EBIT = 1,045,000,000\\\\TIE = (1,045,000,000)/(200,000,000) = 5.225`

For rounding reasons, option "B" should be correct.