The balance sheet for Bearing Industries Inc. at the end of the current fiscal y
ID: 2402380 • Letter: T
Question
The balance sheet for Bearing Industries Inc. at the end of the current fiscal year indicated the following:
Income before income tax was $238,000, and income taxes were $36,400, for the current year. Cash dividends paid on common stock during the current year totaled $41,580. 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.
Bonds payable, 10% (issued in 2006, due in 2026) $1,700,000 Preferred $10 stock, $50 par 63,000 Common stock, $12 par 1,134,000Explanation / Answer
Solution a:
Total interest expense = $1,700,000 * 10% = $170,000
Income before interest and taxes (EBIT) = EBT + Interest = $238,000 + $170,000 = $408,000
Number of times bond interest charges are earned = EBIT / Interest = $408,000 / $170,000 = 2.4 times
Solution b:
Earning after taxes = $238,000 - $36,400 = $201,600
Preference dividend = $63,000 / $50 * $10 = $12,600
Number of times preferred dividends are earned = Earning after taxes / Preference dividend
= $201,600 / $12,600 = 16 times
Solution c:
Earning per share on common stock = Earning for common shareholders / Nos of outstanding shares
Earning for common shareholders = $201,600 - $12,600 = $189,000
Nos of outstanding common shares = $1,134,000 / $12 = 94500 shares
Earning per share = $189,000/94500 = $2 per share
Solution d:
Price-earnings ratio = MPS / EPS = $22/$2 = 11
Solution e:
Dividends per share of common stock = Common stock dividend / Nos of common shares
= $41,580 / 94500 = $0.44 per share
Solution f:
Dividend yield = Dividend per share / Market price per share
= $0.44 / $22 = 2%
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