Hsu Company reported the following on its income statement: An analysis of the income statement revealed that interest expense was $80,000. Hsu Company's times interest earned was:
A) 8.16 times.
B) 6.25 times.
C) 5.25 times.
D) 5.91 times.

Question

Hsu Company reported the following on its income statement:  An analysis of the income statement revealed that interest expense was $80,000. Hsu Company's times interest earned was:
A) 8.16 times. 
B) 6.25 times. 
C) 5.25 times. 
D) 5.91 times.

Quizplus · Accepted Answer

To calculate times interest earned, we divide earnings before interest and taxes (EBIT) by interest expense. Using the information given in the question, we can calculate the times interest earned as follows:

Times interest earned = EBIT / Interest expense
Times interest earned = ($510,000 + $80,000) / $80,000
Times interest earned = $590,000 / $80,000
Times interest earned = 7.375

Therefore, the closest answer choice is B, 6.25 times.

Hsu Company Reported the Following on Its Income Statement