
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
A company report the following
![---
**Earnings per Share and Price-Earnings Ratio**
A company reports the following:
- **Net Income:** $829,000
- **Preferred Dividends:** $47,000
- **Shares of Common Stock Outstanding:** 85,000
- **Market Price per Share of Common Stock:** $104.88
**Steps for Calculation:**
**a. Determine the company's earnings per share on common stock.**
Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required.
*Calculation Box:*
$_________
**b. Determine the company's price-earnings ratio.**
Round to one decimal place.
*Calculation Box:*
_________
---
**Explanation:**
### Calculating Earnings per Share (EPS)
**Formula:**
\[ \text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Shares of Common Stock Outstanding}} \]
### Calculating Price-Earnings (P/E) Ratio
**Formula:**
\[ \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{Earnings per Share}} \]
To find the EPS:
1. Subtract the preferred dividends from net income.
2. Divide the result by the number of shares of common stock outstanding.
To find the P/E Ratio:
1. Divide the market price per share by the EPS calculated in the previous step.
These calculations help investors understand the profitability and valuation of a company.
---
For interactive tools and detailed step-by-step instructions, please refer to the financial educational section on [Our Educational Website](#).](https://content.bartleby.com/qna-images/question/0da0a9ed-480c-4a1e-9dd3-aae3fbebf8de/c71408e8-5a91-44e6-b909-31b0866d8646/s6ztf7v_thumbnail.jpeg)
Transcribed Image Text:---
**Earnings per Share and Price-Earnings Ratio**
A company reports the following:
- **Net Income:** $829,000
- **Preferred Dividends:** $47,000
- **Shares of Common Stock Outstanding:** 85,000
- **Market Price per Share of Common Stock:** $104.88
**Steps for Calculation:**
**a. Determine the company's earnings per share on common stock.**
Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required.
*Calculation Box:*
$_________
**b. Determine the company's price-earnings ratio.**
Round to one decimal place.
*Calculation Box:*
_________
---
**Explanation:**
### Calculating Earnings per Share (EPS)
**Formula:**
\[ \text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Shares of Common Stock Outstanding}} \]
### Calculating Price-Earnings (P/E) Ratio
**Formula:**
\[ \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{Earnings per Share}} \]
To find the EPS:
1. Subtract the preferred dividends from net income.
2. Divide the result by the number of shares of common stock outstanding.
To find the P/E Ratio:
1. Divide the market price per share by the EPS calculated in the previous step.
These calculations help investors understand the profitability and valuation of a company.
---
For interactive tools and detailed step-by-step instructions, please refer to the financial educational section on [Our Educational Website](#).
Expert Solution

This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 2 steps

Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Present the journal entry for (b) manufacturing labor incurred.arrow_forwardWhich of the following is not one of the general ledger and reporting activities? A. Updating the general ledger by posting entries from the accounting subsystems and treasurer B. Posting adjusting entries to the general ledger C. Preparation of managerial reports D. Recording entries in general journalarrow_forwardWhat are the major components of a company's financial statements and what information does each component provide?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education


Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,

Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON

Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education

Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education