Jersey Corporation has total interest expense of $10,000,sales of $1 million,a tax rate of 40%,and net income (after taxes)of $60,000.What is this firm's times interest earned ratio?
A)16
B)11
C)10
D)7

Question

Quizplus · Accepted Answer

Earnings after tax = Earnings before tax - Income tax
Earnings after tax = Earnings before tax - 0.4 F1F1F1S1F1F1F10 Earnings before tax
Earnings after tax = Earnings before tax F1F1F1S1F1F1F10 (1 - 0.4)
Earnings before tax = Earnings after tax F1F1F1S1F1F1F10 (1 - 0.4)
= $60,000 F1F1F1S1F1F1F10 (1 - 0.4)= $100,000
Earnings before interest and taxes = $100,000 + $10,000 = $110,000
Times interest earned = Earnings before interest expense and income taxes F1F1F1S1F1F1F10 Interest expense
= $110,000 F1F1F1S1F1F1F10 $10,000 = 11

Jersey Corporation Has Total Interest Expense of $10,000,sales of $1