The information related to interest expense of Stereo Music is given below: Based on the above data, which of the following is the interest coverage ratio?
A)4.14 times
B)3.92 times
C)6.49 times
D)4.92 times

Question

The information related to interest expense of Stereo Music is given below:  Based on the above data, which of the following is the interest coverage ratio?
A)4.14 times 
B)3.92 times 
C)6.49 times 
D)4.92 times

Quizplus · Accepted Answer

The interest coverage ratio is calculated by dividing earnings before interest and taxes (EBIT) by interest expense. EBIT for Stereo Music is $53,620, and interest expense is $8,255. Therefore, the interest coverage ratio is ($53,620/$8,255) = 6.49 times. Option C is the correct choice.

The Information Related to Interest Expense of Stereo Music Is