Homework Answers
| Solution: | ||
| Answer is 4th option 7.9 times | ||
| Working Notes: | ||
| Income before interest and taxes (EBIT) = ?? | ||
| Given is Income before income taxes , we have to add back interest expense to income before income taxes to get Income before interest and taxes (EBIT) | ||
| Income before interest & taxes (EBIT) | ||
| = Income before income taxes + Interest Expense | ||
| = $579600 + $84000 | ||
| =$663,600 | ||
| Firm's times-interest-earned (TIE) ratio = EBIT/ Interest Expense | ||
| =$663,600/$84,000 | ||
| =7.9 | ||
| =7.9 times | ||
| The times interest earned ratio is also known as the interest coverage ratio, it measures that amount of income that can be used to cover interest expenses how many times . | ||
| Please feel free to ask if anything about above solution in comment section of the question. | ||
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Year
Prior
Year
Interest expense
$425,000
$467,500
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6,587,500
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Berry Company reported the following on the company's income
statement in two recent years:
Current
Year
Prior
Year
Interest expense
$425,000
$467,500
Income before income tax expense
6,587,500
6,872,250
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