Five Measures of Solvency or Profitability The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following: Bonds payable, 6% $1,500,000 Preferred $10 stock, $100 par $88,000 Common stock, $14 par $954,800.00 Income before income tax was $171,000, and income taxes were $25,800 for the current year. Cash dividends paid on common stock during the current year totaled $16,368. The common stock was selling for $16 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 times b. Earnings per share on common stock c. Price-earnings ratio d. Dividends per share of common stock e. Dividend yield

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Chapter1: Financial Statements And Business Decisions
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### Five Measures of Solvency or Profitability

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

- **Bonds payable, 6%:** $1,500,000
- **Preferred $10 stock, $100 par:** $88,000
- **Common stock, $14 par:** $954,800.00

Income before income tax was $171,000, and income taxes were $25,800 for the current year. Cash dividends paid on common stock during the current year totaled $16,368. The common stock was selling for $16 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**: 
   \[ \text{Answer:} \; \_\_\_ \text{ times} \]
   
b. **Earnings per share on common stock**:
   \[ \text{Answer:} \; \$\_\_\_ \]
   
c. **Price-earnings ratio**:
   \[ \text{Answer:} \; \_\_\_ \]
   
d. **Dividends per share of common stock**:
   \[ \text{Answer:} \; \$\_\_\_ \]
   
e. **Dividend yield**:
   \[ \text{Answer:} \; \_\_\_ \% \]

#### Explanation:

1. **Times Interest Earned Ratio**:
   Measures the company's ability to meet its debt obligations based on its earnings. It is calculated using the formula:
   \[
   \text{Times Interest Earned Ratio} = \frac{\text{Income before Income Tax} + \text{Interest Expense}}{\text{Interest Expense}}
   \]

2. **Earnings Per Share on Common Stock**:
   Determines the portion of a company's profit attributed to each outstanding share of common stock. It is calculated using the formula:
   \[
   \text{Earnings Per Share} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted Average Shares Outstanding}}
   \]

3. **Price-Earnings Ratio**:
   A valuation ratio of a company's current share price compared to its per
Transcribed Image Text:### Five Measures of Solvency or Profitability The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following: - **Bonds payable, 6%:** $1,500,000 - **Preferred $10 stock, $100 par:** $88,000 - **Common stock, $14 par:** $954,800.00 Income before income tax was $171,000, and income taxes were $25,800 for the current year. Cash dividends paid on common stock during the current year totaled $16,368. The common stock was selling for $16 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**: \[ \text{Answer:} \; \_\_\_ \text{ times} \] b. **Earnings per share on common stock**: \[ \text{Answer:} \; \$\_\_\_ \] c. **Price-earnings ratio**: \[ \text{Answer:} \; \_\_\_ \] d. **Dividends per share of common stock**: \[ \text{Answer:} \; \$\_\_\_ \] e. **Dividend yield**: \[ \text{Answer:} \; \_\_\_ \% \] #### Explanation: 1. **Times Interest Earned Ratio**: Measures the company's ability to meet its debt obligations based on its earnings. It is calculated using the formula: \[ \text{Times Interest Earned Ratio} = \frac{\text{Income before Income Tax} + \text{Interest Expense}}{\text{Interest Expense}} \] 2. **Earnings Per Share on Common Stock**: Determines the portion of a company's profit attributed to each outstanding share of common stock. It is calculated using the formula: \[ \text{Earnings Per Share} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted Average Shares Outstanding}} \] 3. **Price-Earnings Ratio**: A valuation ratio of a company's current share price compared to its per
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