WGU D104 Units 5 -6 Practice Questions Intermediate
Accounting II Western Governors University
Financial Ratios
Debt to Assets Ratio = Total Liabilities / Total Assets
, Times Interest Earned Ratio = Net Income + Interest Expense + Income Tax Expense / Interest
Expense
Debt to Equity Ratio = Total Liabilities / Total Stockholders’ Equity
Unit 5 Questions
Interpret the impact of long-term ratios.
1. .The times interest earned is computed by dividing
a. net income by interest expense.
b. income before taxes by interest expense.
c. income before income taxes and interest expense by interest expense.
d. net income and interest expense by interest expense.
Ans c
Accounting Rule: the times interest earned ratio measures the ability of a company to pay its debt obligations. It
indicates the margin of safety provided to creditors. The formula is earnings before interest and taxes (EBIT) ÷ Interest
expense. Alternatively, (net income + interest expense + income tax expense) divided by interest expense.
2. A company reports the following financial information:
• Net income: $110,000
• Interest expense: $47,000
• Income tax expense: $22,000
• R&D expense: $38,000
• Operating income: $190,000
What is the company's times interest earned ratio?
a. 6.32
b. 4.62
c. 5.51
d. 3.81
Ans d ($110,000 + $47,000+ $22,000) / $47,000.
Accounting Rule: the times interest earned ratio measures the ability of a company to pay its debt obligations. It
indicates the margin of safety provided to creditors. The formula is earnings before interest and taxes (EBIT) ÷ Interest
expense. Alternatively, (net income + interest expense + income tax expense) divided by interest expense.
3. A company’s 2019 financial statements contain the following selected data:
Income taxes $40,000
Interest expense $25,000
Net income $60,000
What is the company’s times interest earned for 2019?
a. 2.4 times
b. 3.4 times
Accounting II Western Governors University
Financial Ratios
Debt to Assets Ratio = Total Liabilities / Total Assets
, Times Interest Earned Ratio = Net Income + Interest Expense + Income Tax Expense / Interest
Expense
Debt to Equity Ratio = Total Liabilities / Total Stockholders’ Equity
Unit 5 Questions
Interpret the impact of long-term ratios.
1. .The times interest earned is computed by dividing
a. net income by interest expense.
b. income before taxes by interest expense.
c. income before income taxes and interest expense by interest expense.
d. net income and interest expense by interest expense.
Ans c
Accounting Rule: the times interest earned ratio measures the ability of a company to pay its debt obligations. It
indicates the margin of safety provided to creditors. The formula is earnings before interest and taxes (EBIT) ÷ Interest
expense. Alternatively, (net income + interest expense + income tax expense) divided by interest expense.
2. A company reports the following financial information:
• Net income: $110,000
• Interest expense: $47,000
• Income tax expense: $22,000
• R&D expense: $38,000
• Operating income: $190,000
What is the company's times interest earned ratio?
a. 6.32
b. 4.62
c. 5.51
d. 3.81
Ans d ($110,000 + $47,000+ $22,000) / $47,000.
Accounting Rule: the times interest earned ratio measures the ability of a company to pay its debt obligations. It
indicates the margin of safety provided to creditors. The formula is earnings before interest and taxes (EBIT) ÷ Interest
expense. Alternatively, (net income + interest expense + income tax expense) divided by interest expense.
3. A company’s 2019 financial statements contain the following selected data:
Income taxes $40,000
Interest expense $25,000
Net income $60,000
What is the company’s times interest earned for 2019?
a. 2.4 times
b. 3.4 times
