Balance sheet and income statement data indicate the following: Bonds payable, 6
ID: 2422065 • Letter: B
Question
Balance sheet and income statement data indicate the following:
Bonds payable, 6% (this is year 4 of 20 years) $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 340,000
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)?
A. 4.72
B. 5.72
C. 4.83
D. 6.83
Explanation / Answer
$1,200,000 x 6% = $72,000 Interest Expense on Bonds Payable
Number of Times Interest Earned = (Income before interest + tax) / Interest Expense
(340,000 + 72,000) / 72,000 = 5.72
Option b Correct
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