Financial Statements for Narlock Company Appear Below -Narlock Company's Times Interest Earned for Year 2 Was Closest

question 53

Multiple Choice

Financial statements for Narlock Company appear below:

$\begin{array}{|l|r|}\hline&\text {Larned Company } \\&\text { Income Statement } \\&\text { For the Year Ended December 31, Year } \\&2\\&\text { (dollars in thousands) }\\\hline\text { Sales (All on Account) } & \$ 2250 \\\hline \text { Costs of Goods Sold } & \$ 1570 \\\hline \text { Gross Margin } & \$ 680 \\\hline \text { Operating Expenses } & \$ 270 \\\hline \text { Net Operating Income } & \$ 410 \\\hline \text { Interest Expense } & \$ 50 \\\hline \text { Net Income before Taxes } & \$ 360 \\\hline \text { Income Taxes (30\%) } & \$ 108 \\\hline \text { Net Income } & \$ 252 \\\hline\end{array}$

-Narlock Company's times interest earned for Year 2 was closest to which of the following?

• A) 5.0 times.
• B) 7.2 times.
• C) 8.2 times.
• D) 13.6 times.

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Definitions:

Benchmark

A Benchmark is a standard or point of reference against which things may be compared or assessed.

Inventory Turnover Ratio

A metric showing how many times a company has sold and replaced its inventory over a specific period, indicating efficiency in sales and inventory management.

Inventory Accounting Method

Techniques used to calculate the cost of goods sold and value of inventory, including FIFO, LIFO, and weighted average cost methods.

Current Ratio

A financial metric assessing a firm's capability to settle debts due within a year.