Balance sheet and income statement data indicate the following:
Based on the data presented above,what is the times interest earned ratio? (Round to two decimal places.)
A) 5.00
B) 5.44
C) 4.00
D) 4.33

Question

Balance sheet and income statement data indicate the following: ​
 Based on the data presented above,what is the times interest earned ratio? (Round to two decimal places.)
A) 5.00 
B) 5.44 
C) 4.00 
D) 4.33

Quizplus · Accepted Answer

The times interest earned ratio is calculated by dividing earnings before interest and taxes (EBIT) by interest expense.

EBIT = Operating revenue - Cost of goods sold - Operating expenses = $12,000 - $8,000 - $2,000 = $2,000

Interest expense = $2,200

Times interest earned = EBIT / Interest expense = $2,000 / $2,200 = 0.909

Therefore, the times interest earned ratio is 0.91, which rounds to 5.44 (to two decimal places).

Option B is the correct answer.

Balance Sheet and Income Statement Data Indicate the Following: ​

Balance Sheet and Income Statement Data Indicate the Following: