Hsu Company reported the following on its income statement: Income before income taxes
$420,000
Income tax expense
120,000
Net income
$300,000
Interest expense was $80,000. Hsu Company's times interest earned is
A) 8 times
B) 6.25 times
C) 5.25 times
D) 5 times

Question

Quizplus · Accepted Answer

Times interest earned is calculated by dividing income before income taxes and interest expense by interest expense.

Times interest earned = (Income before income taxes + Interest expense) ÷ Interest expense 
Times interest earned = ($420,000 + $80,000) ÷ $80,000 
Times interest earned = 6.25 times

Hsu Company Reported the Following on Its Income Statement: Income