Fahr Company had depreciation expenses of $630,715, interest expenses of $112,078, and an EBIT of $1,542,833 for the year ended June 30, 2006. What are the times interest earned and cash coverage ratios for this company? Round your final answers to one decimal place.
A) 19.4 times; 12.7 times
B) 17.3 time; 11.4 times
C) 13.8 times; 19.4 times
D) None of the above

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated as EBIT divided by interest expenses: $1,542,833 / $112,078 = 13.8 times. The cash coverage ratio is calculated as (EBIT + Depreciation) divided by interest expenses: ($1,542,833 + $630,715) / $112,078 = 19.4 times.

Fahr Company Had Depreciation Expenses of $630,715, Interest Expenses of $112,078