The following data come from the financial records of Zachary Corporation for 2018: Sales$845,000 Interest expense 5,100 Income tax expense 26,000 Net income 28,000 RequiredHow many times was interest earned in 2018? (Round your answer to 2 decimal places.)

Answered: many times was interest

Financial Accounting

15th Edition

ISBN:9781337272124

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter3: The Adjusting Process

Section: Chapter Questions

Problem 29E

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Question

The following data come from the financial records of Zachary Corporation for 2018:


Sales	$	845,000
Interest expense		5,100
Income tax expense		26,000
Net income		28,000

Required

How many times was interest earned in 2018? (Round your answer to 2 decimal places.)

Expert Solution

Step 1 Times interest earned ratio

Times interest earned is a financial measure of how well and entity is able to meet its interest obligations for debt borrowed . The higher the better. It is the number of times an entity has earned income over and above the debt obligations

The formula for times interest earned ratio is

Times interest earned ratio = (Earnings before interest and taxes )/(Interest expense)

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