Exercise 14-9 SUTHERLAND, INC. Income Statement For the Year Ended December 31,

Question

Exercise 14-9

SUTHERLAND, INC.
Income Statement
For the Year Ended December 31, 2017

Exercise 14-9

The income statement for Sutherland, Inc., appears below.

SUTHERLAND, INC.
Income Statement
For the Year Ended December 31, 2017

Net sales $440,000 Cost of goods sold 210,000 Gross profit 230,000 Expenses (including $14,000 interest and $22,000 income taxes) 86,000 Net income $ 144,000
Additional information:
1. The weighted-average common shares outstanding in 2017 were 28,000 shares. 2. The market price of Sutherland, Inc. stock was $13 in 2017. 3. Cash dividends of $24,000 were paid, $5,400 of which were to preferred stockholders.
Compute the following ratios for 2017. (Round Earnings per share to 2 decimal places, e.g. 1.65, and all other answers to 1 decimal place, e.g. 6.8 or 6.8% .)
Earnings per share $

Price-earnings ratio

times Payout ratio

% Times interest earned

times

Explanation / Answer

Earnings Per Share

Earnings per share = [ Net Income – Preferred Dividend ] / weighted-average common shares outstanding

= [ $144,000 – 5,400 ] / 28,000 Shares

= $138,600 / 28,000 Shares

= $4.95 per share

Price - Earnings Ratio

Price - Earnings Ratio = Market Price of the share / Earnings Per Share

= $13 per share / $4.95 per share

= 2.6 Times

Payout Ratio

Payout Ratio = [ Dividend to common shareholders / Net Income available after preferred Dividend ] x 100

= [ $18,600 / 138,600 ] x 100

= 13.4%

Times Interest Earned

Times Interest Earned = [ Net Income + Income Taxes + Interest Expenses ] / Interest Expenses

= [ $144,000 + 22,000 + 14,000 ] / 14,000

= $180,000 / 14,000

= 12.9 Times

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