Exercise 14-9 The income statement for Sutherland, Inc., appears below. SUTHERLA

Question

Exercise 14-9

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

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

Additional information:

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%.)

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

Net sales $400,000 Cost of goods sold 180,000 Gross profit 220,000 Expenses (including $10,000 interest and $20,000 income taxes) 80,000 Net income $ 140,000

Explanation / Answer

Ans.a Earning per share   = (Net income - Preferred dividend) / No. of common share outstanding (140000 - 3000) / 20000 6.85 per share Ans.b Price-earnings ratio   =   Market price per share / Earning per share 10 / 6.85 1.5 times Ans.c Payout ratio = Dividend per share / Earning per share 1 / 6.85 * 100 14.6% Dividend per share = Total dividend / common shares   20000 / 20000    =    $1 Alternative method: Payout ratio = Total Dividend for the period / Net income available for common stockholder's*100 20000 / 137000 * 100 14.6% *Net income available for common stockholder's = Net income - Dividend to preferred stock 140000 - 3000    =    137000 Ans.d Time interest earned   =   Net income before interest & taxes / Interest payable 170000 / 10000 17 times *Calculation of Net income before interest & taxes: Net income 140000 Add: Income taxes 20000 Add: Interest expenses 10000 Net income before interest & taxes 170000

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