The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's times interest earned ratio for 2009 is
A)2.897.
B)2.719.
C)3.375.
D)3.462.

Question

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's times interest earned ratio for 2009 is
A)2.897. 
B)2.719. 
C)3.375. 
D)3.462.

Quizplus · Accepted Answer

The times interest earned ratio is calculated as follows:
Times Interest Earned Ratio = Earnings Before Interest and Taxes (EBIT) / Interest Expense

From the income statement given, EBIT for 2009 is $1,900 and interest expense is $563. Therefore, the times interest earned ratio can be calculated as:
Times Interest Earned Ratio = $1,900 / $563 = 3.375

Therefore, the best choice is C.

The Financial Statements of Midwest Tours Are Given Below