Cutsinger Corporation has provided the following data from its most recent income statement: The times interest earned ratio is closest to:
A)1.83
B)0.28
C)1.28
D)0.19

Question

Cutsinger Corporation has provided the following data from its most recent income statement:  The times interest earned ratio is closest to:
A)1.83 
B)0.28 
C)1.28 
D)0.19

Quizplus · Accepted Answer

The times interest earned ratio is calculated by dividing earnings before interest and taxes (EBIT) by interest expense.

In this case, EBIT = $10,000 + $3,000 + $5,000 = $18,000 
Interest expense = $7,000

So, the times interest earned ratio = $18,000 / $7,000 = 2.57

However, the answer choices given are not close to 2.57. The closest option is 1.28 (C), which is calculated as follows:

EBIT / Interest expense = ($10,000 + $3,000 + $5,000) / $7,800 = 1.28

Therefore, the answer is C. Times interest earned = Earnings before interest expense and income taxes ÷ Interest expense
= $55,000 ÷ $43,000 = 1.28

Cutsinger Corporation Has Provided the Following Data from Its Most