Question

In: Accounting

1. A company reports the following: Income before income tax expense $6,000,000 Interest expense 300,000 Determine...

1. A company reports the following:

Income before income tax expense $6,000,000
Interest expense 300,000

Determine the times interest earned ratio.

2. A company reports the following:

Sales $6,480,000
Average total assets 2,400,000

Determine the asset turnover ratio. Round your answer to one decimal place.

3. A company reports the following income statement and balance sheet information for the current year:

Net income $110,000
Interest expense 77,000
Average total assets 1,700,000

Determine the return on total assets. Round percentage to one decimal place.
%

4. A company reports the following:

Net income $750,000
Preferred dividends 150,000
Average stockholders' equity 5,000,000
Average common stockholders' equity 3,750,000

Determine (a) the return on stockholders’ equity and (b) the return on common stockholders’ equity.

a. The Return on Stockholders’ Equity %
b. The Return on Common Stockholders’ Equity %

5. A company reports the following:

Net income $460,000
Preferred dividends $40,000
Shares of common stock outstanding 150,000
Market price per share of common stock $40.60

a. Determine the company's earnings per share on common stock. Round your answer to two decimal places. Use the rounded answer of requirement a for subsequent requirement, if required.
$

b. Determine the company's price-earnings ratio. Round your answer to one decimal place.

Solutions

Expert Solution

1) Times interest earned ratio = Earning before interest and tax / Interest Expenses

                                           = $6,000,000 / $300,000

                                           = 20 Times

2) Asset turnover ratio = Sales / Average total assets

                                = $6,480,000 / $2,400,000

                                = 2.7

3) Return on total assets = Earning before interest and tax / Average total assets * 100

                                     = ( Net income + Interest expense ) / Average total assets * 100

                                     = ( $110,000 + $77,000 ) / $1,700,000 *100

                                     = $187,000 / $1,700,000 * 100

                                     = 11%

4) a) Return on stockholders’ equity = Net Income / Stockholders’ equity *100

                                                     = $750,000 / $5,000,000

                                                      = 15%

b) Return on common stockholders’ equity = (Net Income - Prefrence Dividend) / Average common stockholders' equity *100

                                                             = ( $750,000 - $150,000 ) / $3,750,000 *100

                                                             = $600,000 / $3,750,000 *100

                                                              = 16%

5) a) Earnings per share on common stock = (Net Income - Prefrence Dividend) / Shares of common stock outstanding

                                                                 = ($ 460,000 - $40,000 ) / 150,000

                                                                 = $420,000 / 150,000

                                                                  = $2.8

b) Price-earnings ratio = Market price per share of common stock / Earnings per share on common stock

                                 = $40.60 / $2.8

                                  = 14.50

ekkarill92 answered 1 year ago
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