Hsu Company reported the following on its income statement: An analysis of the income statement revealed that interest expense was $80,000. Hsu Company's times interest earned was
A) 8 times.
B) 6.25 times.
C) 5.25 times.
D) 5 times.

Question

Hsu Company reported the following on its income statement:  An analysis of the income statement revealed that interest expense was $80,000. Hsu Company's times interest earned was
A) 8 times. 
B) 6.25 times. 
C) 5.25 times. 
D) 5 times.

Quizplus · Accepted Answer

The times interest earned ratio is calculated by dividing earnings before interest and taxes (EBIT) by interest expense. In this case, EBIT is $500,000 ($412,000 + $88,000) and interest expense is $80,000. Therefore, the times interest earned ratio is $500,000/$80,000, which equals 6.25 times.

Hsu Company Reported the Following on Its Income Statement