The income statement for Pointe Company for the year ended December 31 2017 appears below. $$150,000\begin{array}{ll}\text { Sales } & \$ 720,000 \\\text { Cost of goods sold } & \$ 380,000 \\\text { Gross profit } & 340,000 \\\text { Expenses } & 190,000^{} \\\text { Net income } & \$ 150,000\end{array}$ Includes $20000 of interest expense and $25000 of income tax expense.
Additional information:
1. Common stock outstanding on January 1 2017 was 50000 shares. On July 1 2017 10000 more shares were issued.
2. The market price of Pointe's stock was $11.70 at the end of 2017.
3. Cash dividends of $30000 were paid $7000 of which were paid to preferred stockholders.
Instructions
Compute the following ratios for 2017:
(a) Earnings per share.
(b) Price-earnings.
(c) Times interest earned.

Question

The income statement for Pointe Company for the year ended December 31 2017 appears below.

$150,000\begin{array}{ll}\text { Sales } & \$ 720,000 \\\text { Cost of goods sold } & \$ 380,000 \\\text { Gross profit } & 340,000 \\\text { Expenses } & 190,000^{*} \\\text { Net income } & \$ 150,000\end{array}

*Includes $20000 of interest expense and $25000 of income tax expense.
Additional information:
1. Common stock outstanding on January 1 2017 was 50000 shares. On July 1 2017 10000 more shares were issued.
2. The market price of Pointe's stock was $11.70 at the end of 2017.
3. Cash dividends of $30000 were paid $7000 of which were paid to preferred stockholders.
Instructions
Compute the following ratios for 2017:
(a) Earnings per share.
(b) Price-earnings.
(c) Times interest earned.

Kelsie Adams · Accepted Answer

Final Answer :  (a) Earningsper share $ 150 , 000 − $ 7 , 000 [ 50 , 000 + ( 10 , 000 ÷ 2 ) ] = $ 143 , 000 55 , 000 = $ 2.60 \frac { \$ 150,000 - \$ 7,000 } { [ 50,000 + ( 10,000 \div 2 ) ] } = \frac { \$ 143,000 } { 55,000 } = \$ 2.60 [ 50 , 000 + ( 10 , 000 ÷ 2 )] $150 , 000 − $7 , 000 ​ = 55 , 000 $143 , 000 ​ = $2.60 (b) Price-earnings $ 11.70 $ 2.60 = 4.5  times  \frac { \$ 11.70 } { \$ 2.60 } = 4.5 	ext { times } $2.60 $11.70 ​ = 4.5  times  (c) Times interest earned $ 150 , 000 + $ 20 , 000 + $ 25 , 000 $ 20 , 000 = 9.75  times  \frac { \$ 150,000 + \$ 20,000 + \$ 25,000 } { \$ 20,000 } = 9.75 	ext { times } $20 , 000 $150 , 000 + $20 , 000 + $25 , 000 ​ = 9.75  times

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