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The Ventura Company reported total stockholders' equity of $500,000 at December 31, 2010. In addition, there were 80,000 shares of common stock and zero shares of preferred stock outstanding for the entire year. During 2010, Ventura earned net income equal to $75,000, which included deductions of $7,000 for interest and $11,000 for income taxes. Total dividends paid to common stockholders during the year were $60,000. The company's statement of cash flows showed $56,000 in net cash inflows from operating activities, and its stock was selling for $17 per share on December 31, 2010.
-The times interest earned ratio was:
A)13.3
B)12.3
C)10.7
D)8.5

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The Ventura Company reported total stockholders' equity of $500,000 at December 31, 2010. In addition, there were 80,000 shares of common stock and zero shares of preferred stock outstanding for the entire year. During 2010, Ventura earned net income equal to $75,000, which included deductions of $7,000 for interest and $11,000 for income taxes. Total dividends paid to common stockholders during the year were $60,000. The company's statement of cash flows showed $56,000 in net cash inflows from operating activities, and its stock was selling for $17 per share on December 31, 2010.
-The times interest earned ratio was:
A)13.3
B)12.3
C)10.7
D)8.5

Quizplus · Accepted Answer

To calculate the times interest earned ratio, we need to divide earnings before interest and taxes (EBIT) by interest expense. However, we are not given EBIT directly, but we can calculate it using the information provided:
Net income = $75,000
+ Interest expense = $7,000
+ Income taxes = $11,000
EBIT = $75,000 + $7,000 + $11,000 = $93,000

Now, we can calculate the times interest earned ratio:
Times interest earned = EBIT / Interest expense
Times interest earned = $93,000 / $7,000
Times interest earned = 13.3
Therefore, the answer is A) 13.3.

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