Which of the following will not cause times interest earned to drop? Assume no other changes than those listed.
A)An increase in bonds payable with no change in operating income.
B)An increase in interest rates.
C)A rise in preferred stock dividends.
D)A rise in cost of goods sold with no change in interest expense.
E)A drop in sales with no change in interest expense.

Question

Quizplus · Accepted Answer

Times interest earned (TIE) is a measure of a company's ability to meet its debt obligations. It is calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expense. An increase in bonds payable (A) without a change in operating income would cause TIE to drop. An increase in interest rates (B) would increase interest expense, causing TIE to drop. A rise in preferred stock dividends (C) would not impact interest expense or operating income, thus would not affect TIE. A rise in cost of goods sold (D) with no change in interest expense would decrease operating income and cause TIE to drop. A drop in sales with no change in interest expense (E) would decrease operating income and cause TIE to drop.

Which of the Following Will Not Cause Times Interest Earned