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 formula:

EBIT / Interest Expense

EBIT (Earnings Before Interest and Taxes) can be calculated as:

Total Revenue - Cost of Goods Sold - Operating Expenses

= $1,200,000 - $750,000 - $300,000

= $150,000

Interest Expense is given as $34,500.

Therefore,

EBIT / Interest Expense = $150,000 / $34,500 = 4.33 (rounded to two decimal places)

Hence, the answer is B (4.33).

Balance Sheet and Income Statement Data Indicate the Following