Balance sheet and income statement data indicate the following: Based on the dat

Question

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.3.78

b.1.95

c.2.78

d.0.95

Bonds payable, 9% (due in 15 years) $1,460,748 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 $365,697 Income tax for year $109,709 Common dividends paid $60,000 Preferred dividends paid $16,000

Explanation / Answer

Times Interest Earned ratio = EBIT/Int charges

Interest = 1460748 * 9% = 131467.32

EBIT = Profit before tax + Interest

     = 365697 + 131467.32 = 497164.32

Ratio = 497164.32/131467.32 = 3.78

Option (a) is correct

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