If a company had net income of $1,486,875,a times interest earned ratio of 4.0,a tax rate of 35%,and operating income of $3,050,000,what is the company's interest expense for the year?
A)$1,067,500
B)$725,329
C)$371,719
D)$762,500
E)$1,564,000

Question

Quizplus · Accepted Answer

First, let's calculate the earnings before interest and taxes (EBIT):
EBIT = Operating Income + Interest Expense
4.0 = Times Interest Earned Ratio
Therefore, Interest Expense = Operating Income / Times Interest Earned Ratio
Interest Expense = $3,050,000 / 4.0 = $762,500

Next, we need to calculate the earnings before taxes (EBT):
EBT = EBIT - Interest Expense
EBT = $3,050,000 - $762,500 = $2,287,500

Finally, we can calculate the net income:
Net Income = EBT x (1 - Tax Rate)
Net Income = $2,287,500 x (1 - 0.35)
Net Income = $1,486,875, which matches the given net income.

Therefore, the company's interest expense for the year is $762,500 (Choice D).

If a Company Had Net Income of $1,486,875,a Times Interest