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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Twenty metrics of liquidity, solvency, and profitability

The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8


Instuctions

Tunes earned

To determine

Concept Introduction:

Times interest earned Ratio:

A company pays its interest expenses from the Net operating Income available. To find the company's ability to pay the interest expenses, the ratio of Net operating income to interest expenses should be calculated. Interest rate earned ratio shows the number of times interest expenses are covered by the net operating income. It is calculated by dividing the Net operating Income by interest expenses. The formula is as under:

interest earned Ratio = Net Operating Income / interest expenses

(Note: The numerator of the formula "Net operating income" is equal to the Income before deduction of Interest and taxes)

To Calculate:

The internet earned.

Explanation

The Times interest earned is calculated as follows:

    20Y8 20Y7
    Income before taxes (A) $ 1,130,000 $ 1,150,000
    Add: Interest Expense (B)

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