Hsu Company reported the following on its income statement: $\begin{array}{lr}
\text { Income before income taxes } & \$ 420,000 \
\text { Income tax expense } & \$ 120,000 \
\text { Net income } & \$ 300,000 \
\end{array}$
Interest expense was $80,000. Hsu Company's times interest earned ratio is
A) 8 times
B) 6.25 times
C) 5.25 times
D) 5 times

Question

Hsu Company reported the following on its income statement: $\begin{array}{lr}
\text { Income before income taxes } & \$ 420,000 \
\text { Income tax expense } & \$ 120,000 \
\text { Net income } & \$ 300,000 \
\end{array}$ 
Interest expense was $80,000. Hsu Company's times interest earned ratio is
A) 8 times
B) 6.25 times
C) 5.25 times
D) 5 times

Quizplus · Accepted Answer

The times interest earned ratio is calculated as (Income before income taxes + Interest expense) / Interest expense. Here, it is ($420,000 + $80,000) / $80,000 = 6.25 times.

Hsu Company Reported the Following on Its Income Statement Interest Expense Was $80,000