Question

The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following: Bonds payable, 7% $1,800,000 Preferred $10 stock, $50 par 141,500 Common stock, $15 par 2,759,250.00 Income before income tax was $466,200, and income taxes were $70,000 for the current year. Cash dividends paid on common stock during the current year totaled $101,173. The common stock was selling for $22 per share at the end of the year. Determine each of the following. Round answers to one decimal place, except for dollar amounts which should be rounded to the nearest whole cent. Use the rounded answers for subsequent requirements, if required. a. Times interest earned ratio times b. Earnings per share on common stock $ c. Price-earnings ratio d. Dividends per share of common stock $ e. Dividend yield

Answer 1

a. Calculation of Times interest earned ratio times

Times interest earned ratio = (Income Before Tax + Interest Expense) / Interest Expense

=($466,200+$126,000)/$126,000

=>4,7 times

interest expense = $1,800,000*7% = $126,000

b.Calculation of Earnings per share on common stock

Earnings per share on common stock = (Net Income - Preferred Dividends) / Common Shares Outstanding

($396,200-$14,150)/$183,950

=$2.07

Net income = $466,200 - $70,000=$396,200

Preferred dividend = $141,500 * 10% = $14,150

Common Shares Outstanding = $2,759,250 / 15 = 183,950

c.Calculation of Price-earning ratio

Price-Earnings Ratio = Market Price per Share / Earnings per Share

=$22/$2.1 => 10.48

d.Calculation of Dividends per Share of Common Stock

Dividends per Share of Common Stock = Common Dividends / Common Shares Outstanding

$101,173/183,950

0.55

e.Calculation of Dividend Yield

Dividend Yield = Common Dividend per Share / Share Price

=$0.55/$22

=>2.5%