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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

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a) Times interest earned ratio = Earning Before Interest and Tax/Interest Expense

Interest Expense = Interest on Bonds payable

= Bonds payable*7% = $1,000,000*7% =$70,000

Earning Before Interest and Tax = Income before tax+Interest Expense

= $210,000+$70,000 = $280,000

Times interest earned ratio = $280,000/$70,000 = 4 times

b)  Earnings per share on common stock = Earning available for Common Stock/No. of common stock shares

Earning available for Common Stock = Income before taxes - Income tax - Preferred dividends

Preferred Dividends = $52,500*($10/$50) = $10,500

Earning available for Common Stock = $210000 - $31500 - $10500= $168,000

No. of common stock shares = Common Stock/Par value per share

= $117600/$7 = 16,800 shares

Earnings per share on common stock = $168,000/16,800 shares = $10 per share

c) Price Earnings Ratio = Market Price per share/Earning per share

= $120/$10 = 12 times

d) Dividends per share of common stock = Dividends for Common Stock/No. of common stock shares

= $50400/16800 = $3 per share

e) Dividend Yield % = (Dividends per share/Market Price per share)*100

= ($3/$120)*100 = 2.5%

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