The Fortune Company reported the following income for Year 2:
$\begin{array}{lr}
\text { Sales}&\$130,000\
\text {Cost of goods sold }&80,000\
\text { Gross margin}&\$50,000\
\text {Selling and administrative expense }&15,000\
\text { Operating income}&\$35,000\
\text { Interest expense}&5,000\
\text {Income before taxes }&\$30,000\
\text {income tax expense }&10,000\
\text {Net income }&\$20,000\
\end{array}$

What is the company's number of times interest earned ratio?

Question

The Fortune Company reported the following income for Year 2:
$\begin{array}{lr}
\text { Sales}&\$130,000\
\text {Cost of goods sold }&80,000\
\text { Gross margin}&\$50,000\
\text {Selling and administrative expense }&15,000\
\text { Operating income}&\$35,000\
\text { Interest expense}&5,000\
\text {Income before taxes }&\$30,000\
\text {income tax expense }&10,000\
\text {Net income }&\$20,000\
\end{array}$

What is the company's number of times interest earned ratio?

Quizplus · Accepted Answer

The number of times interest earned ratio is calculated by dividing the income before taxes by the interest expense. In this case, the income before taxes is $30,000 and the interest expense is $5,000, so the number of times interest earned ratio is $30,000 / $5,000 = 6 times.

The Fortune Company Reported the Following Income for Year 2