The Balance Sheet and Income Statement for the Year Ended

question 12

Multiple Choice

The balance sheet and income statement for the year ended 2013 indicate the following: $\begin{array}{ll}\$ 1,000,000 & \text { Bonds payable, } 12 \% \text { (issued 1998, due 2022) } \\300,000 & \text { Preferred 5\% stock, } \$ 100 \text { par (no change during year) } \\2,000,000 & \text { Common stock, } \$ 50 \text { par (no change during year) } \\300,000 & \text { Income before income tax for year } \\80,000 & \text { Income tax for year } \\50,000 & \text { Common dividendspaid } \\15,000 & \text { Preferred dividendspaid }\end{array}$
Based on the data presented above, what is the number of times interest charges were earned?

• A) 3.5
• B) 2.2
• C) 4.0
• D) The answer cannot be determined.

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Definitions:

Controllable Expenses

Costs that can be influenced by the decisions of a manager.

Profit Center Management

The administration of a segment of a business that is directly responsible for its own revenue and expenses, aiming to maximize profits.

Salaries

Fixed regular payments made by employers to employees, typically expressed on an annual basis but paid in smaller increments such as monthly.

Departmental Personnel

Staff or workers who belong to a specific department within an organization, each contributing to its functional objectives.