The following financial statement information is available for Long Corporation: The times interest earned for 2015 is
A)7.4 times.
B)6.4 times.
C)9.1 times.
D)7.8 times.

Question

The following financial statement information is available for Long Corporation:  The times interest earned for 2015 is
A)7.4 times. 
B)6.4 times. 
C)9.1 times. 
D)7.8 times.

Quizplus · Accepted Answer

To calculate the times interest earned, we use the formula:

Times Interest Earned = Earnings Before Interest and Taxes (EBIT) / Interest Expense

From the given financial statements, we can calculate the EBIT and Interest Expense for 2015 as follows:

EBIT = Operating Income + Non-operating Income = $59,000 + $7,000 = $66,000
Interest Expense = $7,200

Therefore, the Times Interest Earned = $66,000 / $7,200 = 9.17 times.

Therefore, the best choice is C, with a times interest earned of 9.1 times, rounded to one decimal place.

The Following Financial Statement Information Is Available for Long Corporation