Balance sheet and income statement data indicate the following: $$\begin{array} { l r }
\text { Bonds payable, } 6 \% \text { (due in } 15 \text { years) } & \$ 1,200,000 \
\text { Income before income tax for year } & 320,000 \
\text { Income tax for year } & 80,000 \
\text { Interest payable } & 33,000 \
\text { Interest receivable } & 19,000
\end{array}$$
Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)
A) 5.00
B) 5.44
C) 4.00
D) 4.33

Question

Balance sheet and income statement data indicate the following: $$\begin{array} { l r } 
\text { Bonds payable, } 6 \% \text { (due in } 15 \text { years) } & \$ 1,200,000 \
\text { Income before income tax for year } & 320,000 \
\text { Income tax for year } & 80,000 \
\text { Interest payable } & 33,000 \
\text { Interest receivable } & 19,000
\end{array}$$ 
 Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)
A) 5.00
B) 5.44
C) 4.00
D) 4.33

Quizplus · Accepted Answer

The times interest earned ratio is calculated as (Income before income tax + Interest expense) / Interest expense. Here, the interest expense is $72,000 (6% of $1,200,000). So, the calculation is ($320,000 + $72,000) / $72,000 = $392,000 / $72,000 = 5.44.

Balance Sheet and Income Statement Data Indicate the Following Based on the Data Presented Above, What Is the Times