Tate Company reported the following on its income statement: $\begin{array}{lr}
\text { Income before income taxes } & \$ 500,000 \
\text { Income tax expense } & 150,000 \
\text { Net income } & \$ 350,000
\end{array}$ An analysis of the income statement revealed that interest expense was $200,000. Tate Company's times interest earned was
A) 2.8 times.
B) 3.5 times.
C) 1.8 times.
D) 2.5 times.

Question

Quizplus · Accepted Answer

The times interest earned ratio is calculated as (Income before income taxes + Interest expense) / Interest expense. Here, it is ($500,000 + $200,000) / $200,000 = 3.5 times.

Tate Company Reported the Following on Its Income Statement An Analysis of the Income Statement Revealed That Interest Expense