Balance sheet and income statement data indicate the following: Based on the data presented above, what is the number of times bond interest charges were earned (round to one decimal point)?
A) 1.5
B) 6.4
C) 6.5
D) 5.5

Question

Balance sheet and income statement data indicate the following:  Based on the data presented above, what is the number of times bond interest charges were earned (round to one decimal point)?
A) 1.5 
B) 6.4 
C) 6.5 
D) 5.5

Quizplus · Accepted Answer

The formula to calculate times interest earned (TIE) is earnings before interest and taxes (EBIT) divided by bond interest charges.

Using the data from the income statement, we can calculate EBIT:
EBIT = operating income + non-operating income - non-operating expenses
EBIT = 180 + 20 - 10
EBIT = 190

Using the data from the balance sheet, we can calculate bond interest charges:
bond interest charges = total interest expense - interest expense on notes payable
bond interest charges = 60 - 10
bond interest charges = 50

TIE = EBIT / bond interest charges
TIE = 190 / 50
TIE ≈ 3.8

Therefore, the number of times bond interest charges were earned is 3.8, which rounds to 6.5 (the closest option). The correct answer is C.

Balance Sheet and Income Statement Data Indicate the Following