Tasker Inc. earned a gross profit of $300,000 on sales of $1,200,000 during 20X3. The company also had operating expenses of $180,000. These operating expenses included interest expense of $40,000. The company is subject to an effective tax rate of 30%. What is the company's times interest earned ratio for the year?
A) 4 times
B) 4.5 times
C) 5 times
D) 3.2 times

Question

Quizplus · Accepted Answer

Times interest earned ratio = (EBIT) / Interest expenseEBIT = Gross profit - Operating expenses + Interest expenseEBIT = $300,000 - $180,000 + $40,000EBIT = $160,000Times interest earned ratio = $160,000 / $40,000Times interest earned ratio = 4 times