Continental Company's 2020 financial statements contain the following selected data: $$\begin{array} { l r }
\text { Income tax expense } & \$ 80,000 \
\text { Interest expense } & 20,000 \
\text { Net income } & 160,000
\end{array}$$ Continental's times interest earned for 2020 is

Question

Continental Company's 2020 financial statements contain the following selected data: $$\begin{array} { l r } 
\text { Income tax expense } & \$ 80,000 \
\text { Interest expense } & 20,000 \
\text { Net income } & 160,000
\end{array}$$ Continental's times interest earned for 2020 is

Quizplus · Accepted Answer

Times interest earned is calculated as earnings before interest and taxes (EBIT) divided by interest expense. In this case, Continental Company's EBIT for 2020 is $1,040,000 and its interest expense is $80,000. Therefore, the times interest earned for 2020 is ($1,040,000 / $80,000) = 13 times.