The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following: Bonds payable, 8% $1,500,000 Preferred $5 stock, $50 par 270,000 Common stock, $5 par 877,500.00 Income before income tax was $444,000, and income taxes were $66,000 for the current year. Cash dividends paid on common stock during the current year totaled $85,995. The common stock was selling for $14 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 = 4.7 times

b. Earnings per share on common stock =  $2

c. Price-earnings ratio = 7

d. Dividend per share of common stock = $0.49

e. Dividend yield = 3.5%

Question Requirement:

The question does not state what is to be calculated. Assuming the following ratios are required:

a. Times interest earned ratio

b. Earnings per share on common stock  

c. Price-earnings ratio

d. Dividends per share of common stock  

e. Dividend yield

Explanation:

a. Times interest earned ratio = Income before interest and tax / Interest expense

Interest expense = 0.08 x $1,500,000

                            = $120,000

Times interest earned ratio = ($444,000 + $120,000) / $120,000

                                              = 4.7 times

b.  Earnings per share on common stock = Net income available to common stock holders / Number of common shares outstanding

Preferred dividend = 270,000 x $5 / $50

                                = $27,000

Net income available to common shareholders

= $444,000 - $66,000 - $27,000

= $351,000

Number of common shares outstanding = 877,500 / $5

                                                                   = 175,500

Earnings per share on common stock = $351,000 / 175,500

                                                               = $2

c. Price-earnings ratio = Market price per share / Earnings per share

                                     = $14 / $2

                                     = 7

d. Dividends per share of common stock = Common stock dividend / Number of common shares outstanding

                                                                     = $85,995 / 175,500

                                                                     = $0.49

e. Dividend yield = Dividend per share / Market price per share

                            = $0.49 / $14

                            = 0.035

                            = 3.5%

the answer should be a)