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)
7.89
To calculate the times interest earned ratio, you need to use the following formula:
Times Interest Earned Ratio = (Net Income + Interest Expense + Tax Expense) / Interest Expense
To find the Net Income, you need to subtract the cost of goods sold (COGS), depreciation, and interest expense from the sales:
Net Income = Sales - COGS - Depreciation - Interest Expense
Plugging in the given values:
Net Income = $329,000 - $204,000 - $5,900 - $15,100
Net Income = $104,000
Next, calculate the Tax Expense by multiplying the Net Income by the tax rate:
Tax Expense = Net Income * Tax Rate
Tax Expense = $104,000 * 0.34
Tax Expense = $35,360
Finally, you can calculate the Times Interest Earned Ratio:
Times Interest Earned Ratio = (Net Income + Interest Expense + Tax Expense) / Interest Expense
Times Interest Earned Ratio = ($104,000 + $15,100 + $35,360) / $15,100
Times Interest Earned Ratio = $154,460 / $15,100
Times Interest Earned Ratio ≈ 10.23
Therefore, the times interest earned ratio is approximately 10.23.