Question

Coverall, Inc. had the following amounts for the year ended: interest expense of $1,000, interest income of $2,000, net income of $10,000, income taxes of $3,000 and earnings per share of $3. The times interest earned ratio equals ________.

Answer 1

The times interest earned ratio measures a company's ability to meet its interest payment obligations. In this case, the times interest earned ratio is 14.

Step-by-step explanation:

The times interest earned ratio measures a company's ability to meet its interest payment obligations. It is calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expense. The formula for the times interest earned ratio is:

Times Interest Earned Ratio = EBIT / Interest Expense

In this case, we are given that the interest expense is $1,000. However, we need to calculate the EBIT. We can use the formula:

EBIT = Net Income + Interest Expense + Income Taxes

Plugging in the given values, we get:

EBIT = $10,000 + $1,000 + $3,000 = $14,000

Now we can substitute the values into the times interest earned ratio formula:

Times Interest Earned Ratio = EBIT / Interest Expense = $14,000 / $1,000 = 14

Learn more about Times interest earned ratio here: