Question

Balance sheet and income statement data indicate the following: Bonds payable, 6% (issued 1994, due 2019) $1,200,000 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 320,000 Income tax for year 80,000 Common dividends paid 60,000 Preferred dividends paid 16,000 Based on the data presented above, what is the times interest earned ratio (rounded to two decimal places)?

Answer 1

Answer:

times interest earned ratio = 4.21

Explanation:

times interest earned ratio = income before interest and taxes (EBIT) / interest expense

income before interest and taxes = $320,000

interest expense = $60,000 + $16,000 = $76,000

times interest earned ratio = $320,000 / $76,000 = 4.21