Peartree Inc. provides the following income statement for the year 2015: 2015 Ne
ID: 2499228 • Letter: P
Question
Peartree Inc. provides the following income statement for the year 2015:
2015
Net Sales
$240,000
Cost of Goods Sold
110,000
Gross Profit
$130,000
Operating Expenses:
Selling Expenses
45,000
Administrative expenses
12,000
Total Expenses
57,000
Operating Income
$73,000
Other Revenues and (Expenses):
Loss of sale of capital assets
(23,000)
Interest Expense
(1,000)
Total Other Revenues and (Expenses)
(24,000)
Income Before Taxes
$49,000
Income Tax Expense
5,000
Net Income
$44,000
Calculate the times interest earned ratio
2015
Net Sales
$240,000
Cost of Goods Sold
110,000
Gross Profit
$130,000
Operating Expenses:
Selling Expenses
45,000
Administrative expenses
12,000
Total Expenses
57,000
Operating Income
$73,000
Other Revenues and (Expenses):
Loss of sale of capital assets
(23,000)
Interest Expense
(1,000)
Total Other Revenues and (Expenses)
(24,000)
Income Before Taxes
$49,000
Income Tax Expense
5,000
Net Income
$44,000
Explanation / Answer
Net Income before Interest = Operating Income - Loss on Sale of capital assets
= 73000 - 23000
= $50000
Times Interest Earned Ratio = Net Income before Interest / Interest Expense
= 50000 / 1000
= 50 times
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