Lancaster Landscaping Limited reported the following on its income statement: $\begin{array}{lr}
\text { Profit before income taxes } & \$ 560,000 \
\text { Income tax expense } & 140,000 \
\text { Profit } & \$ 420,000
\end{array}$ An analysis of the income statement revealed that interest expense was $40,000. Lancaster's interest coverage ratio was
A) 15 times.
B) 14 times.
C) 10.5 times.
D) 11.5 times.

Question

Quizplus · Accepted Answer

The interest coverage ratio is calculated as (Profit before income taxes + Interest expense) / Interest expense. Here, it is ($560,000 + $40,000) / $40,000 = 15 times.

Lancaster Landscaping Limited Reported the Following on Its Income Statement