Lake Company reported the following on its income statement: $\begin{array}{ll}
\text { Income before income taxes } & \$ 600,000 \
\text { Income tax expense } & 150,000 \
\text { Net income }&\underline{\underline{\$450,000}}
\end{array}$ An analysis of the income statement revealed that interest expense was $60000. Lake Company's times interest earned was
A) 11 times.
B) 10 times.
C) 8.5 times.
D) 7.5 times.

Question

Lake Company reported the following on its income statement: $\begin{array}{ll}
\text { Income before income taxes } & \$ 600,000 \
 \text { Income tax expense } & 150,000 \
\text { Net income }&\underline{\underline{\$450,000}}
\end{array}$ An analysis of the income statement revealed that interest expense was $60000. Lake Company's times interest earned was
A) 11 times.
B) 10 times.
C) 8.5 times.
D) 7.5 times.

Quizplus · Accepted Answer

The times interest earned ratio is calculated as (Income Before Income Taxes + Interest Expense) / Interest Expense. Plugging in the given numbers: ($600,000 + $60,000) / $60,000 = $660,000 / $60,000 = 11 times.

Lake Company Reported the Following on Its Income Statement An Analysis of the Income Statement Revealed That Interest Expense