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 the earnings before interest and taxes (EBIT) by the interest expense. In this case, EBIT is $500,000 + $80,000 = $580,000. Therefore, the times interest earned is $580,000/$80,000 = 7.25 times, which is closest to option B (6.25 times).

Hsu Company Reported the Following on Its Income Statement