Balance sheet and income statement data indicate the following: $842,000
Bonds payable, 10% (due in two years)
Preferred 5% stock, $100 par (no change during year)
Common stock, $50 par (no change during year)
220,000
1,672,000
376,000
Income before income tax for year
Income tax for year
89,000
Common dividends paid
Preferred dividends paid
83,600
11,000
Based on the data presented, what is the times interest earned ratio (rounded to one decimal place)?
Oa. 7.9
Ob. 4.5
Oc. 3.5
Od. 5.5

The correct option is d. 5.5.

Explanation:

Note: This question is not properly arranged. It is therefore rearranged before answering the question as follows:

Balance sheet and income statement data indicate the following:

Bonds payable, 10% (due in two years)                              $842,000

Preferred 5% stock, $100 par (no change during year)       220,000

Common stock, $50 par (no change during year)             1,672,000

Income before income tax for year                                       376,000

Income tax for year                                                                  89,000

Common dividends paid                                                         83,600

Preferred dividends paid                                                          11,000

Based on the data presented, what is the times interest earned ratio (rounded to one decimal place)?

Oa. 7.9

Ob. 4.5

Oc. 3.5

Od. 5.5

The explanation of the answer is now given as follows:

The times interest earned ratio can be calculated using the following formula:

Times interest earned ratio = EBIT / Interest expenses (1)

Where;

Interest expenses = Bonds payable * 10% = $842,000 * 10% = $84,200

EBIT = Earnings before interest and taxes = Income before income tax for year + Interest expenses = $376,000 + $84,200 = $460,200

Substituting the values into equation (1), we have:

Times interest earned ratio = $460,200 / $84,200 = 5.46555819477435

Rounded to one decimal place, we have:

Times interest earned ratio = 5.5

Therefore, the correct option is d. 5.5.

answer; the above statement/question is ( true);

c.

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