Last year, Nemo's Fish 'n Chips recorded the following financial data: sales = $85,000; cost of goods sold = $45,000; selling and administrative expenses = $25,000; depreciation and amortization = $7,000; interest expense = $12,000. The tax rate was 30%. Find Nemo's interest coverage for last year.
A) -.29 times
B) .66 times
C) .86 times
D) 1.25 times
E) 3.33 times

Question

Quizplus · Accepted Answer

Interest coverage is calculated as EBIT (Earnings Before Interest and Taxes) divided by interest expense. EBIT is calculated as sales minus cost of goods sold, selling and administrative expenses, and depreciation and amortization. Thus, EBIT = $85,000 - $45,000 - $25,000 - $7,000 = $8,000. Interest coverage = $8,000 / $12,000 = 0.67 times. However, the closest option is 1.25 times, which suggests a calculation error in the options provided.

Last Year, Nemo's Fish 'N Chips Recorded the Following Financial