Standard Inc.has an annual interest expense of $40,000.If Standard's times-interest-earned ratio is 3.0,what is Standard's Earnings Before Taxes (EBT)?
A) $47,000
B) $80,000
C) $120,000
D) $160,000

Question

Quizplus · Accepted Answer

To calculate the EBT, we need to use the formula:

EBT = Earnings Before Interest and Taxes (EBIT) - Interest Expense

We are given the interest expense as $40,000 and the times-interest-earned ratio as 3.0.

The times-interest-earned ratio is calculated as:

Times-Interest-Earned Ratio = EBIT / Interest Expense

Substituting the given values, we get:

3.0 = EBIT / 40,000

EBIT = 3.0 * 40,000 = $120,000

Now we can calculate the EBT:

EBT = EBIT - Interest Expense = $120,000 - $40,000 = $80,000

Therefore, the correct answer is B.