The Fortune Company reported the following income for 2014: $$\begin{array} { | l | r | }
\hline \text { Sales } & \$ 130,000 \
\hline \text { Cost of goods sold } & 80,000 \
\hline \text { Gross margin } & \$ 50,000 \
\hline \text { Selling and administrative expense } & 15,000 \
\hline \text { Operating income } & \$ 35,000 \
\hline \text { Interest expense } & 5,000 \
\hline \text { Income before taxes } & \$ 30,000 \
\hline \text { Income tax expense } & 10,000 \
\hline \text { Net income } & \$ 20,000 \
\hline & \
\hline
\end{array}$$ What is the company's number of times interest is earned ratio?

Question

The Fortune Company reported the following income for 2014: $$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 130,000 \
\hline \text { Cost of goods sold } & 80,000 \
\hline \text { Gross margin } & \$ 50,000 \
\hline \text { Selling and administrative expense } & 15,000 \
\hline \text { Operating income } & \$ 35,000 \
\hline \text { Interest expense } & 5,000 \
\hline \text { Income before taxes } & \$ 30,000 \
\hline \text { Income tax expense } & 10,000 \
\hline \text { Net income } & \$ 20,000 \
\hline & \
\hline
\end{array}$$ What is the company's number of times interest is earned ratio?

Quizplus · Accepted Answer

The number of times interest is earned ratio is calculated by dividing the income before taxes by the interest expense. In this case, the income before taxes is $30,000 and the interest expense is $5,000. Therefore, the number of times interest is earned ratio is $30,000 / $5,000 = 6 times.

The Fortune Company Reported the Following Income for 2014 What Is the Company's Number of Times Interest Is Earned