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23 votes
23 votes
Auto Industries Company reported the following on its income statement:

Income before income taxes $420,000
Income tax expense (120,000)
Net income $300,000
If the income statement also shows interest expense equal to $80,000, what is the company's times interest earned ratio?
a. 5 times.
b. 6.25 times.
c. 5.25 times.
d. 8 times.

User Stefan Arentz
by
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1 Answer

11 votes
11 votes

Answer:

Option c. 5.25 times is the correct answer.

Step-by-step explanation:

Below is the calculation:

Income before income tax = $420000

Income tax expenses = 120000 dollars

Net income = $300000

Interest expense = $80000

Interest earned ratio = Earning Before Interest and Taxes / Interest Expenses

Interest earned ratio = 420000 / 80000

Interest earned ratio = 5.25 times

Option c. 5.25 times is the correct answer.

User Sirlark
by
3.6k points