FINANCIAL ACCT-CONNECT
8th Edition
ISBN: 9781266627903
Author: Wild
Publisher: INTER MCG
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Chapter 9, Problem 11QS
Summary Introduction
Introduction:Times interest earned ratio is calculated to check the ability of company in paying the interest to its investors. It is calculated by dividing the earnings before interest & taxes payment by the interest expenses.
To calculate: The times interest earned and interpret it.
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Students have asked these similar questions
Use the following information from separate companies a through d:
Net Income (Loss) Interest Expense Income Taxes
$117,000
111,600
99,450
120, 100
a.
b.
C.
d.
Compute times interest earned. Which company indicates the strongest ability to pay interest expense as it comes due
Times Interest Interest
Earned Ratio Coverage
Compute times interest earned.
Complete this question by entering your answers in the tabs below.
Company
$46,800
47,988
36,797
4,804
a
b
C
d
$29,250
40,176
41,769
57,648
Times Interest Earned Ratio
Choose Numerator:
1
1
1
1
1
1
Choose Denominator:
The following financial information was obtained from the year ended 2024 income statements for Luigi Automotive and Steinbeck Automotive:
(Click the icon to view the financial information.)
Requirements
1. Compute the times-interest-earned ratio for each company. Round to two decimals.
2.
Which company was better able to cover its interest expense?
Requirement 1. Compute the times-interest-earned ratio for each company. Round to two decimals.
Begin by showing the formula for the times-interest-earned ratio.
Times-interest-earned ratio =
C--)
Data table
Net income
Income tax expense
Interest expense
Print
$
Luigi Steinbeck
52,395 $
20,590
550
Done
89,990
26,260
3,100
X
Park Company reports interest expense of $145,000 and income before interest expense and income taxes of $1,885,000.
(1) Compute its times interest earned.
(2) Park's competitor's times interest earned is 4.0. Is Park in a better or worse position than its competitor to make interest payments if
the economy turns bad?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Compute its times interest earned.
Choose Numerator:
Times Interest Earned
1 Choose Denominator:
1
Times Interest Earned
Times interest earned
times
Chapter 9 Solutions
FINANCIAL ACCT-CONNECT
Ch. 9 - Prob. 1DQCh. 9 - Prob. 2DQCh. 9 - Prob. 3DQCh. 9 - Prob. 4DQCh. 9 - What is the combined amount (in percent) of the...Ch. 9 - What is the current Medicare tax rate? This rate...Ch. 9 - Prob. 7DQCh. 9 - Prob. 8DQCh. 9 - Prob. 9DQCh. 9 - Why are warranty liabilities usually recognized on...
Ch. 9 - Prob. 11DQCh. 9 - Prob. 12DQCh. 9 - Prob. 13DQCh. 9 - Prob. 14DQCh. 9 - Prob. 15DQCh. 9 - Prob. 16DQCh. 9 - Prob. 17DQCh. 9 - Prob. 1QSCh. 9 - Prob. 2QSCh. 9 - Ticketsales, Inc., receives $5,000,000 cash in...Ch. 9 - Prob. 4QSCh. 9 - Prob. 5QSCh. 9 - Prob. 6QSCh. 9 - Prob. 7QSCh. 9 - Prob. 8QSCh. 9 - Prob. 9QSCh. 9 - Prob. 10QSCh. 9 - Prob. 11QSCh. 9 - Prob. 12QSCh. 9 - Sera Corporation has made and recorded its...Ch. 9 - Prob. 1ECh. 9 - Prob. 2ECh. 9 - Prob. 3ECh. 9 - Interest-bearing notes payable with year-end...Ch. 9 - Prob. 5ECh. 9 - Prob. 6ECh. 9 - Prob. 7ECh. 9 - Prob. 8ECh. 9 - Prob. 9ECh. 9 - Hitzu Co. sold a copier costing $4,800 with a...Ch. 9 - Prob. 11ECh. 9 - Prob. 12ECh. 9 - Accounting for contingent liabilities C3 Prepare...Ch. 9 - Prob. 14ECh. 9 - Prob. 15ECh. 9 - Prob. 16ECh. 9 - Prob. 18ECh. 9 - Prob. 1PSACh. 9 - Prob. 2PSACh. 9 - Prob. 3PSACh. 9 - Prob. 4PSACh. 9 - Prob. 5PSACh. 9 - Entries for payroll transactions P2 P3 P5...Ch. 9 - Prob. 1PSBCh. 9 - Prob. 2PSBCh. 9 - Fishing Guides Co. has four employees. FICA Social...Ch. 9 - Prob. 4PSBCh. 9 - Shown here are condensed income statements for two...Ch. 9 - Prob. 6PSBCh. 9 - Prob. 9SPCh. 9 - Refer to the financial statements of Apple in...Ch. 9 - Key figures for Apple and Google follow. *Apple...Ch. 9 - Prob. 3BTNCh. 9 - Prob. 5BTNCh. 9 - Assume that your team is in business and you must...Ch. 9 - Prob. 7BTNCh. 9 - Prob. 8BTNCh. 9 - Prob. 9BTN
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- To determine: Times interest earned ratio Given info: Income before income tax and interest expense. Solution: Calculate interest earned ratio. Times-interest-earnedratio}=Incomebeforeincometax+InterestexpenseInterestexpense=8,000,000+500,000500,000=17.0times Explanation: Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense. Formula: Times-interest-earnedratio}=Incomebeforeincometax+InterestexpenseInterestexpense Conclusion: Therefore, times interest earned ratio is 17.0 times.arrow_forwardThe formula for determining the rate earned on total assets is Net Income + Interest Expense/Average Total Assets. Assume that the Interest Expense for Shine, Inc. for the Year Ended December 31, 2011, is $25,000. Assume further that Income before Income Taxes is $395,000, Income Taxes is $150,000 and Net Income is $245,000. If the Average Total Assets for Shine, Inc. for the Year Ended December 31, 2011 is $909,000, what is the rate earned on total assets? Group of answer choices 2.9% 3.4 26.9% 29.7%arrow_forwardThe formula for determining the rate earned on total assets is Net Income + Interest Expense/Average Total Assets. Assume that the Interest Expense for Shine, Inc. for the Year Ended December 31, 2011, is $25,000. Assume further that Income before Income Taxes is $395,000, Income Taxes is $150,000 and Net Income is $245,000. If the Average Total Assets for Shine, Inc. for the Year Ended December 31, 2011 is $909,000, what is the rate earned on total assets?arrow_forward
- Using the income statement for Times Mirror and Glass Co., compute the following ratios: TIMES MIRROR AND GLASS Co. Income Statement Sales Cost of goods sold Gross profit Selling and administrative expense Lease expense Operating profit* Interest expense Earnings before taxes Taxes (30%) Earnings after taxes *Equals income before interest and taxes. a.Compute the interest Interest coverage ge ratio. (Round yo times $ 223,000 130,000 $ 93,000 44,000 19,100 $ 29,900 10,600 times $ 19,300 7,720 $ 11,580 answer to 2 decimal places.) b.Compute the fixed charge coverage ratio. (Round your answer to 2 decimal places.) Fixed charge coveragearrow_forwardFor Magdalen Industries, compute the net income before taxes and net profit (or loss). Taxes for the year were $7.5 million. (a) Calculate net profit for the year. (b) Construct the income statement. (c) Calculate the interest coverage and net profit ratio. Is the interest coverage acceptable? Explain why or why notarrow_forwardIn the recent year Hill Corporation had net income of $140,000, interest expense of $40,000, and tax expense of $20,000. What was Hill Corporation's times interest earned ratio for the year? Select one: О а. 4.0 O a. ОБ. 3.5 Ob. 3.0 d. 5.0arrow_forward
- Refer to the following selected financial information from Gomez Electronics. Compute the company's times interest earned for Year 2. Net sales. Cost of goods sold Interest expense Net income before tax Net income after tax Total assets Total liabilities Total equity Multiple Choice O O O O 4.5. 5.5. 7.6. 13.6. 6.6. Year 2 $ 481,500 276,900 10,300 67,850 46,650 318,300 178,400 139,900 Year 1 $ 426,850 250, 720 11,300 53,280 40,500 291,600 167,900 123,700arrow_forwardThe formula for determining the number of times interest charges earned is Income before Income Tax + Interest Expense/Interest expense. Assume that the Interest Expense for Rainbow Paint for the Year Ended December 31, 20Y6, is $50,000. Assume further that Income before Income Taxes is $700,000, Income Taxes is $200,000 and Net Income is $500,000. What is the number of times interest charges are earned for Rainbow Paint, Co. for the Year Ended December 31, 20Y6?arrow_forwardA company's has interest expense of $52,000, income taxes expense of $121,000 and net income of $281,000. The company's times interest earned ratio equals:arrow_forward
- XYZ Corporation reported net income of $100,000, interest expense of $10,000, and tax expense of $20,000. Calculate the company's earnings before interest and taxes (EBIT) and net profit margin.arrow_forwardBerry Company reported the following on the company's income statement in two recent years: Current Year Prior Year Interest expense $499,000 $598,800 Income before income tax expense 7,435,100 $9,101,760 a. Determine the number of times interest charges were earned for current Year and prior Year. Round to one decimal place. Current Year Prior Year b. Is the number of times interest charges are earned improving or declining?arrow_forwardIacouva Company reported the following on the company's income statement for two recent years: Current Year Prior Year Interest expense $5,000,000 $5,000,000 Income before income tax 3,500,000 6,000,000 a. Determine the times interest earned ratio for the current year and the prior year. Round to one decimal place. What conclusions can you draw? b.arrow_forward
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