In a recent year Cold Corporation had net income of $250,000, interest expense of $50,000, and a times interest earned of 10. What was Cold Corporation's income before taxes for the year?
A) $550,000
B) $500,000
C) $450,000
D) None of the answers are correct.

Question

Quizplus · Accepted Answer

First, we need to find out the earnings before interest and taxes (EBIT). We know that the times interest earned is 10, which means that the EBIT is 10 times the interest expense.

EBIT = 10 x $50,000 = $500,000

Next, we can use the formula for net income:

Net income = EBIT - Interest expense - Taxes

We don't have information about the taxes, but we can solve for EBIT:

EBIT = Net income + Interest expense + Taxes

$500,000 = $250,000 + $50,000 + Taxes

Taxes = $200,000

Now we can calculate the income before taxes:

Income before taxes = EBIT - Taxes = $500,000 - $200,000 = $300,000

Therefore, the correct answer is option C: $450,000.

In a Recent Year Cold Corporation Had Net Income of $250,000