In a recent year, Cold Corporation had net income of $250,000, interest expense of $50,000, and a times interest earned of 10.What was Cold Corporation's income before taxes for the year?

Question

Quizplus · Accepted Answer

The formula for times interest earned is net income before taxes divided by interest expense. Rearranging this formula, we can find that net income before taxes is equal to times interest earned multiplied by interest expense. Plugging in the given values, we have:
Net income before taxes = 10 x $50,000 = $500,000 
However, we are looking for income before taxes, not net income before taxes. We know that net income equals income before taxes minus taxes. We are not given information about the amount of taxes paid, but we do know that net income was $250,000. Therefore, we can set up the equation:
$250,000 = income before taxes - taxes 
We do not know the amount of taxes paid, but we do know that income before taxes was $500,000. Solving for taxes, we get:
$250,000 = $500,000 - taxes
$250,000 = taxes
Therefore, the income before taxes was $500,000 - $250,000 = $250,000.

In a Recent Year, Cold Corporation Had Net Income of $250,000