Data from Lheureux Corporation's most recent balance sheet and the company's income statement appear below:

-The times interest earned for Year 2 is closest to:
A)2.22
B)4.17
C)3.17
D)5.95

Question

Data from Lheureux Corporation's most recent balance sheet and the company's income statement appear below:

-The times interest earned for Year 2 is closest to:
A)2.22 
B)4.17 
C)3.17 
D)5.95

Quizplus · Accepted Answer

The times interest earned ratio is calculated by dividing earnings before interest and taxes (EBIT) by the interest expense. 
From the information given in the question, we can calculate the EBIT for Year 2 as follows: 
EBIT = Operating income + Non-operating income – Non-operating expenses 
EBIT = 53000 + 3000 – 4000 = 52000

The interest expense for Year 2 is given as $12,000. 
Therefore, the times interest earned ratio for Year 2 is: 
Times interest earned = EBIT / Interest expense 
Times interest earned = 52000 / 12000 
Times interest earned = 4.33 (approx)

The closest option to this is B) 4.17.

Data from Lheureux Corporation's Most Recent Balance Sheet and the Company's