The following data represent selected information from the comparative income statement and balance sheet for Hot Rolled Corporation for the years ended December 31,2017 and 2016: •10,000 shares of common shares have been issued and outstanding since the company was established.They had a market value of $90 per share on December 31,2016,and they were selling for $91.50 on December 31,2017.
Refer to the table above.Hot Rolled Corporation's times-interest-earned ratio for the year ended December 31,2017,was:
A) 22.75
B) 11.88
C) 11.38
D) 10.88

Question

The following data represent selected information from the comparative income statement and balance sheet for Hot Rolled Corporation for the years ended December 31,2017 and 2016:  •10,000 shares of common shares have been issued and outstanding since the company was established.They had a market value of $90 per share on December 31,2016,and they were selling for $91.50 on December 31,2017.
Refer to the table above.Hot Rolled Corporation's times-interest-earned ratio for the year ended December 31,2017,was:
A) 22.75 
B) 11.88 
C) 11.38 
D) 10.88

Quizplus · Accepted Answer

To calculate the times-interest-earned ratio, we need to use the formula:

Times-Interest-Earned Ratio = (Net Income + Interest Expense + Income Tax Expense) / Interest Expense

From the comparative income statement, we can see that the interest expense for the year ended December 31, 2017, is $1,704,000.

To find the net income, we need to subtract the total expenses (including interest and income tax expenses) from the total revenues. From the comparative income statement, we can see that the total revenues for the year ended December 31, 2017, is $73,728,000 and the total expenses are $64,128,000. Therefore, the net income is:

Net Income = Total Revenues - Total Expenses
Net Income = $73,728,000 - $64,128,000
Net Income = $9,600,000

Now we can calculate the times-interest-earned ratio:

Times-Interest-Earned Ratio = (Net Income + Interest Expense + Income Tax Expense) / Interest Expense
Times-Interest-Earned Ratio = ($9,600,000 + $1,704,000 + 0) / $1,704,000
Times-Interest-Earned Ratio = 6.63

Therefore, the times-interest-earned ratio for Hot Rolled Corporation for the year ended December 31, 2017, was 6.63, which is closest to option B) 11.88.

The Following Data Represent Selected Information from the Comparative Income