Fayer Corporation has provided the following financial data:Balance SheetDecember 31, Year 2 and Year 1AssetsYear 2Year 1Current assets: Cash$161,000 $180,000 Accounts receivable, net 110,000 130,000 Inventory 181,000 160,000 Prepaid expenses 57,000 70,000 Total current assets 509,000 540,000 Plant and equipment, net 1,044,000 960,000 Total assets$1,553,000 $1,500,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable$188,000 $160,000 Accrued liabilities 57,000 60,000 Notes payable, short term 36,000 40,000 Total current liabilities 281,000 260,000 Bonds payable 200,000 200,000 Total liabilities 481,000 460,000 Stockholders' equity: Common stock, $4 par
value 200,000 200,000 Additional paid-in capital 80,000 80,000 Retained earnings 792,000 760,000 Total stockholders' equity 1,072,000 1,040,000 Total liabilities & stockholders' equity$1,553,000 $1,500,000 Income StatementFor the Year Ended December 31, Year 2Sales (all on account)$1,220,000 Cost of goods sold 760,000 Gross margin 460,000 Operating expenses 389,846 Net operating income 70,154 Interest expense 14,000 Net income before taxes 56,154 Income taxes (35%) 19,654 Net income$36,500 Dividends on common stock during Year 2 totaled $4,500. The market price of common stock at the end of Year 2 was $10.88 per share.The company's times interest earned ratio for Year 2 is closest to:
A. 4.01
B. 2.61
C. 7.71
D. 5.01
Answer: D
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