A. Times interest earned is calculated as the operating income before interest and taxes divided by the interest expense. The operating income before interest and taxes is $345 ($385 income plus the $50 of interest and $120 of taxes minus the $210 gain from the disposal since it is not operations). Interest was $50, and this gives a times interest earned of 6.90.
B. This answer uses net income to calculate the times interest earned and does not adjust it for interest, taxes and nonrecurring items.
C. This answer is incorrect. See the correct answer for a complete explanation.
D. This answer adjusts net income only for the nonrecurring item and does not adjust for interest and taxes.
