The following information was obtained from the records of Trophy Company for 2010: $\begin{array}{ll}
\text { Net sales } & \$ 2,600,000 \
\text { Interest expense } & 80,000 \
\text { Income tax expense } & 40,000 \
\text { Net income } & 100,000
\end{array}$ How many times was interest earned in 2010?
A)1.25 times
B)1.75 times
C)2.75 times
D)32.5 times

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated as (Net Income + Interest Expense + Income Tax Expense) / Interest Expense. For Trophy Company, this is ($100,000 + $80,000 + $40,000) / $80,000 = 2.75 times.

The Following Information Was Obtained from the Records of Trophy