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Net income is $248,000 and preferred dividends are $12,000. What is the number of times preferred dividends are earned (to one decimal)?
A21.7
B19.7
C20.7
D0.05
Answer & Solution
Correct answer: C. 20.7
1. Ratio = net income / preferred dividends.
2. = $248,000 / $12,000.
3. = 20.7.
4. Trap: 0.05 (option D) inverts the ratio.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.3.4 "Number of Times Preferred Dividends Are Earned", p.303_
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