Question

Bonds payable, 8% (due in 15 years) $1,459,536 Preferred 8% stock, $100 par (no change during the year) $200,000 Common stock, $50 par (no change during the year) $1,000,000 Income before income tax for year $328,796 Income tax for year $98,639 Common dividends paid $60,000 Preferred dividends paid $16,000 Based on the data presented above, what is the times interest earned ratio (round to two decimal places)?

Answer 1

Answer:

3.82 times

Explanation:

The computation of times interest earned ratio is shown below:-

Bond Interest charges Earned  = Bond Value × Interest Rate

= $1,459,536 × 8%

= $116,762.88

Net Income before Interest  = Net Income Income Before Interest + Interest

= $328,796 + $116,762.88

= $445,558.88

Number of times bond interest charges were earned  = Net Income before Interest and taxes ÷ Interest charges

= $445,558.88 ÷ $116,762.88

= 3.82 times