Question

In recent year Cey Corporation had net income of 500,000, interest expense of100,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year?

1) $800,000
2) None of these
3) $1,000,000
4) $900,000

Answer 1

Using the times interest earned ratio formula, the income before taxes for Cey Corporation is calculated to be $800,000, which is the correct answer to the student's question.

Step-by-step explanation:

The student has asked about calculating the income before taxes for Cey Corporation given a set of financial data. To determine the income before taxes, we need to use the time's interest earned ratio, which is calculated by dividing the income before interest and taxes by the interest expense. The formula looks like this: Times Interest Earned Ratio = (Income Before Taxes + Interest Expense) / Interest Expense.

In this scenario, we are given a net income of $500,000, an interest expense of $100,000, and a times interest earned ratio of 9. Using the formula, we can calculate the Income Before Taxes (IBT) as follows:

Times Interest Earned Ratio = (IBT + Interest Expense) / Interest Expense
9 = (IBT + $100,000) / $100,000
IBT + $100,000 = 9 * $100,000
IBT + $100,000 = $900,000
IBT = $900,000 - $100,000
IBT = $800,000

Therefore, the correct answer is 1) $800,000.