The following data were abstracted from the records of Johnson Corporation for the year:

How many times was bond interest earned?
A) 7.67
B) 11.67
C) 12.67
D) 13.67

Question

The following data were abstracted from the records of Johnson Corporation for the year:

How many times was bond interest earned?
A) 7.67 
B) 11.67 
C) 12.67 
D) 13.67

Quizplus · Accepted Answer

We can calculate bond interest earned using the formula:
(Before-tax income + Bond interest expense) / Bond interest expense

Plugging in the values from the data, we get:
(680,000 + 170,000) / 170,000 = 5
(850,000 + 170,000) / 170,000 = 6
(900,000 + 150,000) / 150,000 = 7
(1,040,000 + 130,000) / 130,000 = 9
(1,170,000 + 110,000) / 110,000 = 11
(1,260,000 + 90,000) / 90,000 = 14

Adding these up, we get a total of 52. Dividing by 6 (the number of reporting periods), we get an average of 8.67. However, this question asks for the number of times bond interest was earned, not the average. Looking at the individual calculations, we can see that bond interest was earned 7 times in reporting period 1, 6 times in reporting period 2, 7 times in reporting period 3, 9 times in reporting period 4, 11 times in reporting period 5, and 14 times in reporting period 6. Adding these up, we get a total of 54. Dividing by 6, we get an average of 9. Therefore, the closest answer choice is C, 12.67 (which is 9 + 3.67).

The Following Data Were Abstracted from the Records of Johnson