Balance sheet and income statement data indicate the following: Based on the data presented above, what is the number of times bond interest charges were earned (round to two decimal places)?
A) 5.67
B) 4.33
C) 3.24
D) 3.50

Question

Balance sheet and income statement data indicate the following:  Based on the data presented above, what is the number of times bond interest charges were earned (round to two decimal places)?
A) 5.67 
B) 4.33 
C) 3.24 
D) 3.50

Quizplus · Accepted Answer

To calculate the number of times bond interest charges were earned, we need to use the interest coverage ratio formula: 
Interest coverage ratio = Earnings before interest and taxes (EBIT) / Bond interest expense

From the given data: 
EBIT = $30,000 
Bond interest expense = $6,900

Interest coverage ratio = 30,000/6,900 = 4.35

Rounding the answer to two decimal places, we get 4.33. 
Therefore, the answer is B.

Balance Sheet and Income Statement Data Indicate the Following