Question

The information related to interest expense of Classic Music, Inc. is given belowNet income $264,000Income tax expense $107,000Interest expense $66,000Based on the above data, which of the following is the times-interest-earned ratio?A. 5.00 timesB. 4.08 timesC. 6 62 timesD. 4.00 times

Answer 1

Classic Music, Inc.

C. 6.62 times

Step-by-step explanation:

a) The times-interest-earned (TIE) ratio measures a company's ability to meet its debt obligations based on its current income. It is calculated as earnings before interest and taxes (EBIT) divided by the total interest payable on bonds and other debts.

b) The EBIT is $437,000 (Net Income + Income Tax and Interest Expenses).

c) Therefore, the TIE is equal to 6.62 times ($437,000/$66,000).