Question

The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following:

Bonds payable, 6%	$1,000,000
Preferred $10 stock, $50 par	$56,500
Common stock, $6 par	$440,700.00

Income before income tax was $186,000, and income taxes were $27,800 for the current year. Cash dividends paid on common stock during the current year totaled $48,477. 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

The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year:

Common stock, $50 par value (no change during the year)	$13,500,000
Preferred $5 stock, $200 par (no change during the year)	8,000,000

The net income was $848,000 and the declared dividends on the common stock were $67,500 for the current year. The market price of the common stock is $20.40 per share.

For the common stock, determine (a) the earnings per share, (b) the price-earnings ratio, (c) the dividends per share, and (d) the dividend yield. If required, round your answers to two decimal places.

a. Earnings per Share	$
b. Price-Earnings Ratio
c. Dividends per Share	$
d. Dividend Yield		%

Answer 1

Question of Garcon Company

1. Times Interest Earned = Earnings Before Interest and Tax / Interest Expense

Earnings Before Interest and Tax = Income before Taxes + Interest Expense

= 186,000 + 60,000

= $ 246,000

Interest Expense = 6% of Value of Bonds Payables

Interest Expense = 6% of 10,00,000

Interest Expense = $ 60,000

Times Interest Earned = 246,000 / 60,000

Times Interest Earned = 4.1 Times

2. Earnings per Share on Common Stock = Net Income available for Common Stockholders / Number of Common Stock Shares

Net Income available for Common Stockholders = Profit Before Taxes - Taxes - Preferred Stock Dividend

= 186,000 - 27,800 - 11,300

= $ 146,900

Preferred Stock Dividend = 56,500 / 50 = 1,130 Preferred Shares

Preferred Stock Dividend = 1,130 Shares * $ 10 per share = $ 11,300

Number of Common Stock Shares = 440,700 / 6 = 73,450 Shares

Earnings per Share for Common Stockholders = 146,900 / 73,450

Earnings per Share for Common Stockholders = $ 2 per Share

3. Price Earnings Ratio = Market Price per Share / Earnings per Share

Price Earnings Ratio = 22 / 2

Price Earnings Ratio = 11 Times

4. Dividend per Share on Common Stock = Dividend for Common Stockholders / Number of Common Stockholders

= 48,477 / 73,450

= $ 0.66 per Common Share (Use 0.6 for one decimal place)

5. Dividend Yield = Dividend per Share on Common Stock / Market Price per Common Share * 100

= 0.66 / 22 * 100

= 3%

Question of Tolbert Inc.

1. Earnings per Share = Net Income available for Common Stockholders / Number of Common Stock Shares

Net Income available for Common Stockholders = Net Income - Preferred Dividends

= 848,000 - 200,000

= $ 648,000

Preferred Dividend = Value of Preferred Stock / Par Value of Preferred Stock * $ 5 Preferred Dividend per Share

= (80,00,000/200) * 5

= $ 200,000

Number of Common Stock Shares = 13,500,000 / $ 50 Par Value = 270,000 Shares

Earnings per Share =

$ 2.4 per Share

2. Price Earnings Ratio = Market Price per Share / Earnings per Share

Price Earnings Ratio = 20.40 / 2.40

Price Earnings per = 8.5 Times

3. Dividend per Share = Dividend paid on Common Stock / Number of Common Stockholders

= 67500 / 270,000

= $ 0.25 per Share

4. Dividend Yield = Dividend per Share / Market Price per Share * 100

= 0.25 / 20.40 * 100

= 1.23%