MEGAFRAME COMPUTER COMPANY
Balarce Sheet
as of Decermber 31 MEGAFRAME COMPUTER COMPANY
Income Statement
for the Year Ended Decernber

question 46

Multiple Choice

MEGAFRAME COMPUTER COMPANY
Balarce Sheet
As of Decermber 31
$\begin{array}{lr}\text { ASSETS } \\\text { Cash } & \$ 50,000 \\\text { Accounts receivable } & 70,000 \\\text { Inventory } & 110,000 \\\text { Net plant and equipment } & 220,000\\\text { Total assets }&\$450,000\\\\\text { LIABIITES AND STOCKHOLDERS' EQUTTY }\\\text { Accounts payable } & \$ 0,000 \\\text { Accrued expenses } & 50,000 \\\text { Long-term debt } & 130,000 \\\text { Common stock } & 70,000 \\\text { Paid-in capital } & 40,000 \\\text { Retained earnings } & 90,000\\\text { Total liabilities and stockholders' equity }&\$450,000\end{array}$
MEGAFRAME COMPUTER COMPANY
Income Statement
For the year ended Decernber 31
$\begin{array}{ll}\text {Sales (all on credit) }&\$875,000 \\\text { Cost of goods sold}&600,000 \\\text {Gross profit }& \$275,000\\\text { Sales and administrative expenses}&30,000 \\\text {Depreciation }&55,000 \\\text { Operating profit}&\$190,000 \\\text {Interest expense }&25,000 \\\text {Profit before taxes }&\$165,000 \\\text { Taxes \( (30 \%) \) }&49,500 \\\text { Net income}& \$115,500\\\end{array}$

Refer to the tables above. Times interest earned for Megaframe Computer is ________.

• A) 3.8x
• B) 4.6x
• C) 11x
• D) 7.6x

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Definitions:

Unused Capacity

The available production or service facility that is not currently being used to its full potential.

Estimated Activity

A forecast of the level of operations or engagement in a particular task or project.

Capacity

The maximum output a system can produce over a given period of time. It's crucial for planning and efficiency improvement.

Machine-Hours

A measure of production time or capacity based on the number of hours machines are in operation.