CrossSports had interest expense of $12,000 and its income before interest and income taxes was $28,000.Its times interest earned ratio:

Question

Quizplus · Accepted Answer

Times interest earned ratio is calculated as income before interest and taxes divided by interest expense.

Times interest earned ratio = Income before interest and taxes ÷ Interest expense

= $28,000 ÷ $12,000

= 2.3

Since the ratio is above 1, it indicates that CrossSports generates enough income to cover its interest expense. Generally, a ratio of 2 or higher is considered acceptable, so a ratio of 2.3 is acceptable as well. Therefore, choice D is correct - the times interest earned ratio is both 2.3 and acceptable.

CrossSports Had Interest Expense of $12,000 and Its Income Before