Last year, Catrina's Café Inc's income statement reported the following: profit, $67,500; interest expense, $15,000; and income tax expense, $22,500. The company's times interest earned ratio is

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expense.

EBIT = Profit + Interest Expense + Income Tax Expense
EBIT = $67,500 + $15,000 + $22,500
EBIT = $105,000

Times interest earned ratio = EBIT / Interest expense
Times interest earned ratio = $105,000 / $15,000
Times interest earned ratio = 7.0 times

Therefore, the answer is A) 7.0 times.

Last Year, Catrina's Café Inc's Income Statement Reported the Following