Tate Company reported the following on its income statement: An analysis of the income statement revealed that interest expense was $100,000.Tate Company's times interest earned was

Question

Tate Company reported the following on its income statement:  An analysis of the income statement revealed that interest expense was $100,000.Tate Company's times interest earned was

Quizplus · Accepted Answer

To calculate the times interest earned, we divide earnings before interest and taxes (EBIT) by interest expense. In this case, Tate Company's EBIT is $600,000 ($500,000 operating income + $100,000 interest expense). Therefore, the times interest earned is 6 times ($600,000 divided by $100,000).

Tate Company Reported the Following on Its Income Statement