Tate Company Reported the Following on Its Income Statement An Analysis of the Income Statement Revealed That Interest Expense

question 7

Multiple Choice

Tate Company reported the following on its income statement: $\begin{array}{lr}\text { Income before income taxes } & \$ 500,000 \\\text { Income tax expense } & 150,000 \\\text { Net income } & \$ 350,000\end{array}$ An analysis of the income statement revealed that interest expense was $200,000. Tate Company's times interest earned was

• A) 2.8 times.
• B) 3.5 times.
• C) 1.8 times.
• D) 2.5 times.

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Definitions:

Payables Period

The average amount of time it takes for a business to pay off its owed liabilities to suppliers or creditors.

Cash Cycle

It describes the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

Inventory Period

The amount of time it takes for a company to sell through its current stock of inventory.

Accounts Receivable Period

The average number of days that it takes a company to collect payments after a sale has been made, a critical component of managing cash flow.