The information related to interest expense of Stereo Music, Inc. is given below
Net income $264,000
Income tax expense 107,000
Interest expense 66,000
Based on the above data, which of the following is the times-interest-earned ratio?
A) 4.08 times
B) 4 times
C) 6.62 times
D) 5 times
C .Times-interest-earned ratio = EBIT / Interest Expense
EBIT = Net Income + Income Tax Expense + Interest Expense
EBIT = $264,000 + $107,000 + $66,000
EBIT = $437,000
Interest Coverage Ratio = $437,000 / $66,000 = 6.62 times.
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