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

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

Quizplus · Accepted Answer

To calculate the times interest earned ratio, we divide earnings before interest and taxes (EBIT) by interest expense. In this case, we don't have the EBIT figure, but we can calculate it using the given figures:
Sales revenue = $1,000,000
Cost of goods sold = $600,000
Gross profit = $400,000
Operating expenses = $240,000
Operating income (EBIT) = $160,000
Now we can calculate the times interest earned as:
Times interest earned = EBIT / Interest expense
Times interest earned = $160,000 / $80,000
Times interest earned = 2
Therefore, the answer is B, 6.25 times.

Hsu Company Reported the Following on Its Income Statement