Balance sheet and income statement data indicate the following: Bonds payable, 8

Question

Balance sheet and income statement data indicate the following:
Bonds payable, 8% (issued 1990, due 2015) $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 number of times bond interest charges were earned (round to two decimal places)?

Explanation / Answer

Income before tax = $320,000

Bond Payable = $1,200,000 * 8% = $96000

EBIT = (320,000 + 96,000)/ 96,111

= 416,000 / 96000

= 4.33 times earned

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