Homework Answers
SOLUTION:-
Times Interest earned ratio represents ability of the company to meet its obligations for Interest.
Times Interest Earned = Income Before Interest expense and Income Taxes / Interest Expense
In the Question, Income before Income tax is given therefore we have to add back interest expense to it to arrive at Income before Interest expense and Income Taxes. Hence Interest expense is added to the Income before income tax
Hence,
Times Interest Earned = (Income Before income Tax + Interest expense) / Interest expense
= ($1023911 + $29670) / $29670
= 35.5 times
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