Balance sheet and income statement data indicate the following: Bonds payable, 1

Question

Balance sheet and income statement data indicate the following: Bonds payable, 12% (issued 1998, due 2022) $1,000,000 Preferred 5% stock, $100 par (no change during year) 300,000 Common stock, $50 par (no change during year) 2,000,000 Income before income tax for year 300,000 Income tax for year 80,000 Common dividends paid 50,000 Preferred dividends paid 15,000 Based on the data presented above, what is the number of times interest charges were earned (rounded to one decimal place)?

a. 3.5

b. 2.2

c. 4.0

d. The answer cannot be determined.

Explanation / Answer

Interest = $1,000,000 x 12% = $ 120,000

EBIT = $300,000+$120000=$420,000

Times Interest Earned = $ 420,000/$120,000 = 3.5

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