Question

In a recent year, sherwood day corporation had sales of $500,000, net income of $200,000, interest expense of $40,000, and tax expense of $30,000. what was day corporation's times interest earned for the year?

Answer 1

The interest earned by the Sherwood Day Corporation is calculated by subtracting from the net income all the expenses including the interest expense and the tax expense. Mathematically,
interest earned = $200,000 - ($40,000 + $30,000)
= $130,000