In a recent year Luke Corporation had net income of $250000 interest expense of $50000 and a times interest earned of 10. What was Luke Corporation's income before taxes for the year?
A) $550000
B) $500000
C) $450000
D) None of these answer choices are correct.

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated as income before interest and taxes divided by interest expense. Given a times interest earned of 10 and interest expense of $50,000, the income before interest and taxes is 10 * $50,000 = $500,000. To find income before taxes, add net income ($250,000) to interest expense ($50,000), which equals $300,000. However, this calculation is incorrect based on the given formula and information. The correct calculation should be directly from the times interest earned formula: since the income before interest and taxes (EBIT) is 10 times the interest expense, and the interest expense is $50,000, the correct EBIT is indeed $500,000, which means the income before taxes is also $500,000, making the initial explanation incorrect in its calculation method. The correct income before taxes is directly given by the times interest earned calculation, which is $500,000.

In a Recent Year Luke Corporation Had Net Income of $250000