Asked by Emily Treadaway on Jun 07, 2024
Verified
Balance sheet and income statement data indicate the following: Based on the data presented above, what is the times interest earned ratio (round to two decimal places) ?
A) 5.00
B) 5.44
C) 4.00
D) 4.33
Times Interest Earned Ratio
A financial metric that measures a company's ability to meet its debt obligations by comparing its interest expenses to its earnings before interest and taxes.
Income Statement
A report showing the earnings, expenses, and net income of a business during a particular period, reflecting its financial performance.
- Comprehend the process of calculating and interpreting the times interest earned ratio.
Verified Answer
NR
Natasha RedmanJun 08, 2024
Final Answer :
B
Explanation :
To calculate the times interest earned ratio, we need to use the formula:
Times Interest Earned Ratio = Net Income before Interest and Taxes / Interest Expense
From the given income statement, we can see that the Net Income before Interest and Taxes is $78,000, and from the balance sheet, we can see that the Interest Expense is $14,300.
Plugging in the numbers into the formula, we get:
Times Interest Earned Ratio = $78,000 / $14,300 = 5.44 (rounded to two decimal places)
Therefore, the best answer is B, with an explanation showing the calculation of the formula.
Times Interest Earned Ratio = Net Income before Interest and Taxes / Interest Expense
From the given income statement, we can see that the Net Income before Interest and Taxes is $78,000, and from the balance sheet, we can see that the Interest Expense is $14,300.
Plugging in the numbers into the formula, we get:
Times Interest Earned Ratio = $78,000 / $14,300 = 5.44 (rounded to two decimal places)
Therefore, the best answer is B, with an explanation showing the calculation of the formula.
Learning Objectives
- Comprehend the process of calculating and interpreting the times interest earned ratio.
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