Vintage Boutique reported Interest expense of $5,500, Income tax expense of $24,000 and Net income of $77,000. Vintage Boutique's interest coverage ratio is: (Round your final answer to two decimal places.)

Question

Quizplus · Accepted Answer

Interest coverage ratio is calculated by dividing earnings before interest and taxes (EBIT) by interest expense.

EBIT = Net income + Interest expense + Income tax expense 
EBIT = $77,000 + $5,500 + $24,000 
EBIT = $106,500

Interest coverage ratio = EBIT / Interest expense 
Interest coverage ratio = $106,500 / $5,500 
Interest coverage ratio = 19.36

Therefore, the answer is D, 19.36. This means that Vintage Boutique's earnings are 19.36 times larger than its interest expense, indicating that the company can comfortably meet its interest obligations.

Vintage Boutique Reported Interest Expense of $5,500, Income Tax Expense