Multiple Choice Question 61 Information for Ramirez Corp. is given below: Ramire

Question

Multiple Choice Question 61 Information for Ramirez Corp. is given below: Ramirez Corp. Balance Sheet December 31, 2015 Assets Equities Cash $200,000 Accounts payable $420,000 Accounts receivable (net) 1,300,000 Income taxes payable 126,000 Inventories 1,626,000 Miscellaneous accrued payables 150,000 Plant and equipment, Bonds payable (10%, due 2017) 1,250,000 net of depreciation 1,322,000 Preferred stock ($100 par, 6% Patents 174,000 cumulative nonparticipating) 500,000 Other intangible assets 50,000 Common stock (no par, 30,000 Total Assets $4,672,000 shares authorized, issued and outstanding) 750,000 Retained earnings 1,626,000 Treasury stock-1000 shares of preferred (150,000) Total Equities $4,672,000 Ramirez Corp. Income Statement Year Ended December 31, 2015 Net sales $6,000,000 Cost of goods sold 4,000,000 Gross profit 2,000,000 Operating expenses (including bond interest expense) 1,000,000 Income before income taxes 1,000,000 Income tax 300,000 Net income $ 700,000

Additional information: There are no preferred dividends in arrears, the balances in the Accounts Receivable and Inventory accounts are unchanged from January 1, 2015, and there were no changes in the Bonds Payable, Preferred Stock, or Common Stock accounts during 2015. Assume that preferred dividends for the current year have not been declared.

The number of times interest was earned during 2015 was

874 ÷ 125.

700 ÷ 125.

1,000 ÷ 125.

1,124 ÷ 125.

Explanation / Answer

The correct answer is

Number of times interest earned= EBIT/ Interest Expense

1000+125/125

= 1125 /125

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