EX 17-20 Six measures of solvency or profitability the rice-earningsThe balance
ID: 2519927 • Letter: E
Question
EX 17-20 Six measures of solvency or profitability the rice-earningsThe balance sheet for Kronos Inc. at the end of the current fiscal year indicated 4.4 following: Bonds payable, 10% (issued in 2002, due in 2022) Preferred $4 stock, $40 par Common stock, $10 par $3,750,000 2,000,000 3,600,000 were $400,000, for the current of times rice-earnings ratio, (e) dividends per share of common stock, and (D dividend yield. Round to one Income before income tax was $2,400,000, and income taxes year. Cash dividends paid on common stock during the current year totaled $720,000 common stock was selling for $72 per share at the end of the year. Determine the following: (a) number of times bond interest charges are earned, (b) number of preferred dividends are earned, (c) earnings per share on common stock, (d) p decimal place except earnings per share, which should be rounded to two decimal placesExplanation / Answer
a) No of times bond interest charges are earned
Bond Interest payable (10% on $3,750,000) $375,000
Income before interest and Tax $ (2,400,000+375,000) $ 2,775,000
No of times bond interest charges are earned 2,775,000/375,000
= 7.4 times
b) No of times preferred dividends are earned
Par value of Preference shares $2,000,000
Par value per share $40
No of Preference shares $2,000,000/40
= 50000
Preferred dividend per share $4
Total preferred dividends 50000*4
= $200,000
Income after interest and Tax $ 2,400,000
No of times preferred dividends are earned =$2,400,000/200,000
= 10 times
c) Earning per share on common stock
Income after tax and preferred dividends $(2,400,000-400,000-200,000) = 1,800,000
Total par value of common stock $3,600,000
Par value per share $10
No of shares 3,600,000/10
=360,000
Earning Per share of Common stock = 1,800,000/360,000
= $ 5.00
d) Price- earnings ratio
Price earnings ratio = Price per share/earning per share
Price per share = $72
Earning per share = 5.00
Price earnings ratio =72/5
= 14.4
e) Dividend per share of common stock
Cash dividends paid on common stock = $720,000
No of shares on common stock = 360,000
Dividend per share = $720,000/360,000
= $2
f) Dividend yield
Dividend yield = Dividend per share/ market value per share
= $2/$72*100
= 2.78%
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