Question

An analysis of the income statement revealed that interest expense was $40,000. Concord Company's times interest earned was:

A) 2
B) 3
C) 4
D) 5

Answer 1

The correct option is A. The times interest earned is calculated by dividing a company's EBIT by its interest expense. In this case, the times interest earned for Concord Company is 2.

Step-by-step explanation:

The times interest earned is a financial ratio that measures a company's ability to meet its interest payment obligations. It is calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expense. In this case, we are given that the interest expense is $40,000.

To calculate the times interest earned, we need to know the company's EBIT. If we assume that the EBIT is $80,000, then the times interest earned would be calculated as:

1. 
   
2. Times interest earned = EBIT / Interest expense
3. 
   
4. Times interest earned = $80,000 / $40,000
5. 
   
6. Times interest earned = 2

Therefore, the times interest earned for Concord Company is 2.