Tree Frog Company is organized as a LLC and does not pay income taxes.The company has fixed interest expense of $5,750,sales of $253,000,and variable expenses of $189,750.What is the company's times interest earned ratio?
A)44
B)33
C)11
D)10
E)$63,250

Question

Quizplus · Accepted Answer

Times Interest Earned Ratio = (Operating Income) / (Interest Expense)

Since Tree Frog Company does not pay income taxes, we can assume that their operating income is equal to their sales minus variable expenses:

Operating Income = Sales - Variable Expenses
Operating Income = $253,000 - $189,750
Operating Income = $63,250

Now we can calculate the Times Interest Earned Ratio:

Times Interest Earned Ratio = (Operating Income) / (Interest Expense)
Times Interest Earned Ratio = $63,250 / $5,750
Times Interest Earned Ratio = 11

Therefore, the answer is C (11).

Tree Frog Company Is Organized as a LLC and Does