Answer:
Times Interest earned ratio is 4.41 times
Explanation:
Times interest earned ratio measure the business capability to pay the interest over its liabilities from its current earning.
As interest expense value is not given it is calculated by the net of Earning before interest and tax and Income before tax
Net Income = Addition to Retained Earning + Dividend Paid = $133,100 + ( 84,000 x $1 ) = $133,100 + $84,000 = $217,100
Income before tax = $217,100 x 100% / ( 100% - 35%) = $334,000
Earning before interest and tax = Sales - Cost of goods sold - depreciation expense - other operating expenses = 1,440,000 - 570,000 - 144,000 - 294,000 = $432,000
Interest Expense = Earning before interest and tax - Income before tax = $432,000 - 334,000 = $98,000
Times Interest earned ratio = Earning before Interest and tax / Interest expense = $432,000 / $98000 = 4.41 time
