A company's income before interest expense and taxes is $250,000 and its interest expense is
$100,000. Its times interest earned ratio is 2.5.

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated by dividing the income before interest expense and taxes by the interest expense.

Times Interest Earned Ratio = Income Before Interest Expense and Taxes / Interest Expense

In this case:

Times Interest Earned Ratio = $250,000 / $100,000 = 2.5

Since the given times interest earned ratio matches the calculated ratio, the answer is A) True.

A Company's Income Before Interest Expense and Taxes Is $250,000