Question

Desjardin Landscaping's Income statement reports net Income of $74, 800. which Includes deductions for Interest expense of $11, 700 and Income taxes of $35, 100. Its times interest earned is:

A. 10.4 times
B. 7.4 times
C. 4.0 times
D. 6.4 times
E. 0.16 times

Answer 1

Answer:

Ans. A) 104 times

Explanation:

Hi, the formula that you are looking for for times interest earned (TIE) is:

$TIE=\frac{EBIT}{InterestsExpense}$

And the EBIT (earnings before interests and taxes) is:

$EBIT=Net Income+Interests+Taxes$

$EBIT=74,800+11,700+35,100=121,600$

Since the interest expense is $11,700 and the EBIT is $121,600, we can say that the TIE ratio is:

$TIE=\frac{121,600}{11,700} =10.39316239=10.4$

Best of luck.