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, what is the times interest earned ratio? Round your answer to two decimal places.

Select the correct answer.

4.53

0.35

2.53

2.83

Bonds payable, 10% (due in two years) $980,000 Preferred 5% stock, $100 par (no change during year) 268,200 Common stock, $50 par (no change during year) 1,527,200 Income before income tax for year 346,357 Income tax for year 86,926 Common dividends paid 76,360 Preferred dividends paid 13,410 Interest expense 98,000

Explanation / Answer

Answer:- Time interest period= Income before Interest & Taxes(EBIT)/Interest expenses

                                                 =$444357/$98000

                                                 = 4.53 times

Explanation:- Company income is 4.53 times is greater than its interest expense. In other word company can afford to pay additional interest expense.

Where:-

Income before Interest & Taxes (EBIT)= Income before income tax+ Interest expense

                                                             =$346357+$98000

                                                             = $444357

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