The income statement for Otto Construction Company appear below: Average total assets total $240,000.Otto's income tax rate is 25%.
What is the times interest earned ratio?

Question

The income statement for Otto Construction Company appear below:  Average total assets total $240,000.Otto's income tax rate is 25%.
What is the times interest earned ratio?

Quizplus · Accepted Answer

Times interest earned ratio = (Net income before interest and taxes) / Interest expense

From the income statement, we can calculate:

Net income before interest and taxes = Gross profit - Operating expenses = $47,000 - $25,000 = $22,000

Interest expense = $6,000

Times interest earned ratio = $22,000 / $6,000 = 3.67

Therefore, the closest answer is D, 4.17, which is the rounded up value of 3.67.

The Income Statement for Otto Construction Company Appear Below