Question

Balance sheet and income statement data indicate the following: Bonds payable, 10% (due in 15 years) $1,360,531 Preferred 8% stock, $100 par (no change during the year) $200,000 Common stock, $50 par (no change during the year) $1,000,000 Income before income tax for year $446,559 Income tax for year $133,968 Common dividends paid $60,000 Preferred dividends paid $16,000 Based on the data presented above, what is the times interest earned ratio (round to two decimal places)

Answer 1

Answer:

The times interest earned ratio is 4.42

Explanation:

Interest expense = Bonds payable x Interest rate

= 1,306,531 x 10%

= $130,653

Times interest earned ratio = ( Income before income tax for year + Interest expense)/Interest expense

= $\frac{( 446,559 + 130,653)}{130,653}$

= $\frac{577,212}{130,653}$

= 4.42