Question

Times interest earned A company reports the following: Income before income tax $4,348,500 Interest expense 195,000...

Times interest earned

A company reports the following:

Income before income tax $4,348,500
Interest expense 195,000

Determine the times interest earned ratio. If required, round the answer to one decimal place.

Business   Accounting   
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Answer #1

Answer:

Times interest earned or interest coverage proportion is a proportion of an organization's capacity to honor its debt payments

The times interest earned proportion is determined by partitioning income before interest and annual taxes by the interest cost.

Interest before income tax = $ 43,48,500

Interest expense = $ 1,95,000

Interest before income tax and interest = $ 43,48,500+$ 1,95,000 = $ 45,43,500

Time interest earned ratio = $ 45,43,500 / $ 1,95,000 = 23.3

Therefore the time interest earned ratio is 23.3

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