Aslam Company reported the following on its income statement for the year-ended June 30, 2014. $$\begin{array} { l r }
\text { Earnings before income tax } & \$ 550,000 \
\text { Income tax expense } & \underline { 160,000 } \
\text { Net income } & \$ 390,000
\end{array}$$ An analysis of the income statement revealed that interest expense was $60,000 for the year.What was Aslam's interest coverage ratio closest to?
A)6.5 times
B)9.2 times
C)9.9 times
D)10.2 times
($550,000 + $60,000)/$60,000 = 10.2 times

Question

Aslam Company reported the following on its income statement for the year-ended June 30, 2014. $$\begin{array} { l r } 
\text { Earnings before income tax } & \$ 550,000 \
\text { Income tax expense } & \underline { 160,000 } \
\text { Net income } & \$ 390,000
\end{array}$$ An analysis of the income statement revealed that interest expense was $60,000 for the year.What was Aslam's interest coverage ratio closest to?
A)6.5 times
B)9.2 times
C)9.9 times
D)10.2 times
($550,000 + $60,000)/$60,000 = 10.2 times

Quizplus · Accepted Answer

The interest coverage ratio is calculated by adding earnings before income tax ($550,000) to interest expense ($60,000), then dividing by the interest expense ($60,000). This calculation results in 10.2 times, indicating how many times the company can cover its interest expense with its earnings before tax and interest.

Aslam Company Reported the Following on Its Income Statement for the Year-Ended