The balance sheet for Bearing Industries Inc. at the end of the current fiscal y

Question

The balance sheet for Bearing Industries Inc. at the end of the current fiscal year indicated the following:

Income before income tax was $156,000, and income taxes were $22,800, for the current year. Cash dividends paid on common stock during the current year totaled $31,500. The common stock was selling for $100 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, 8% (issued in 2006, due in 2026) $1,500,000 Preferred $5 stock, $50 par 72,000 Common stock, $10 par 126,000

Explanation / Answer

a. Number of times bond interest charges are earned is calculated as EBIT/ interest expense

= 2,76,000/ 120,000 = 2.3

b. Number of times preferred dividends are earned is calculated as net income /preference dividend

= 133,200 /7,200 =18.5

c.Earnings per share on common stock is calculated as earnings available for common stockholders/ no. of outstanding shares of common stock = 126,000 /12,600 = $10

d. Price - earnings ratio is calculated as market price per share of common sock / earnings per share

= 100 /10 = 10

e. Dividends per share of common stock is calculated as Dividends paid/ no. of shares outstanding

=31,500/ 12,600 = $2.5

f. Dividend yield is calculated as Dividend per share/ market price per share of common stock x 100

= 2.5 / 100 x 100 =2.5%

Earnings before interest and taxes (EBIT) 276,000 Less Interest expense (15,00,000 x 8%) 120,000 Earnings before tax 156,000 Income tax 22,800 Net income 133,200 Less preference dividend 7,200 Earnings available for common stockholders 126,000

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