19. Temple, Inc. has sales of $329,000, cost of goods sold of $204,000, depreciation of $5,900, and interest expense of $15,100. The tax rate is 34 percent. What is the times interest earned ratio? (Please calculate the arithmetic solution and show your work)
To calculate the times interest earned (TIE) ratio, we need to divide the earnings before interest and taxes (EBIT) by the interest expense.
First, we need to calculate the EBIT by subtracting the cost of goods sold (COGS), depreciation, and interest expense from the sales revenue:
EBIT = Sales - COGS - Depreciation - Interest Expense
EBIT = $329,000 - $204,000 - $5,900 - $15,100
Next, we can calculate the EBIT by substituting the values:
EBIT = $104,000 - $5,900 - $15,100
EBIT = $83,000
Now, we can calculate the TIE ratio by dividing the EBIT by the interest expense:
TIE Ratio = EBIT / Interest Expense
TIE Ratio = $83,000 / $15,100
Finally, we can substitute the values and calculate the TIE ratio:
TIE Ratio = 5.496
Therefore, the times interest earned (TIE) ratio is approximately 5.496.
To calculate the times interest earned (TIE) ratio, we first need to determine the operating income, which is calculated by subtracting the cost of goods sold (COGS) and depreciation from the sales:
Operating Income = Sales - COGS - Depreciation
= $329,000 - $204,000 - $5,900
= $119,100
Next, we subtract the interest expense from the operating income to find the earnings before taxes (EBT):
EBT = Operating Income - Interest Expense
= $119,100 - $15,100
= $104,000
Now that we have the earnings before taxes, we can calculate the net income by applying the tax rate of 34%:
Net Income = EBT * (1 - Tax Rate)
= $104,000 * (1 - 0.34)
= $104,000 * 0.66
= $68,640
Finally, the times interest earned (TIE) ratio is calculated by dividing the earnings before taxes by the interest expense:
TIE = Earnings Before Taxes / Interest Expense
= $104,000 / $15,100
≈ 6.92
Therefore, the times interest earned ratio for Temple, Inc. is approximately 6.92.