Question

Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.

Current liabilities $ 197 Income before interest and taxes $ 116
10% Bonds, long-term 370 Interest expense 37
Total liabilities 567 Income before tax 79
Shareholders' equity Income tax 22
Capital stock 210 Net income $ 57
Retained earnings 291
Total shareholders'
equity 501
Total liabilities and
equity $1,068
HHF's times interest earned ratio is (Round your answer to two decimal places.):__________.
a) 10.00.
b) 3.14.
c) 1.54.
d) 2.14.

Answer 1

HHF's times interest earned ratio is 3.14. The right answer is b

Step-by-step explanation:

In order to calculate the times interest earned ratio we would have to use the following formula:

Times interest earned ratio=Earnings before interest and taxes/Interest expenses

According to the given data we have the following:

Earnings before interest and taxes= $116

Interest expenses =$37

Therefore, Times interest earned ratio=$116/$37

Times interest earned ratio=3.14

HHF's times interest earned ratio is 3.14