Question

Foxhound Capital, LLC has the following being reported on the financial statements on December 31, 2014: Sales $120,000; Total Expenses $98,000; Net Income $22,000; Interest Expense $2,174; Income Tax $4,000. Calculate the time interest earned ratio (round to the nearest whole number).

Answer 1

Answer:

13%

Explanation:

We can calculate the time interest earned ratio by dividing the income before interest and tax with total interest expense

DATA

Net income  = 22,000

Interest expense = 2,174

Tax = 4,000

Calculation

Income before interest and tax = 22,000 + 2,174 + 4,000

Income before interest and tax = 28,174

Interest earned ratio = Income before interest and tax / Interest expense

Interest earned ratio = 28,174 / 2,174

Interest earned ratio = 12.95 or 13%