Financial statements for Larned Company appear below: Dividends during Year 2 totaled $263 thousand, of which $12 thousand were preferred dividends.
The market price of a share of common stock on December 31, Year 2 was $160.

-Larned Company's price-earnings ratio on December 31,Year 2 was closest to:
A)5.88
B)14.50
C)8.70
D)8.40

Question

Financial statements for Larned Company appear below:   Dividends during Year 2 totaled $263 thousand, of which $12 thousand were preferred dividends.
The market price of a share of common stock on December 31, Year 2 was $160.

-Larned Company's price-earnings ratio on December 31,Year 2 was closest to:
A)5.88 
B)14.50 
C)8.70 
D)8.40

Quizplus · Accepted Answer

Number of common shares outstanding = Common stock F1F1F1S1F1F1F10 Par value
= $180 F1F1F1S1F1F1F10 $10 per share = 18 shares
Earnings per share = (Net Income - Preferred Dividends)
F1F1F1S1F1F1F10 Average number of common shares outstanding
= ($343 - $12)F1F1F1S1F1F1F10 (18 shares + 18 shares)/2 = $18.39 per share
Price-earnings ratio = Market price per share F1F1F1S1F1F1F10 Earnings per share
= $160 F1F1F1S1F1F1F10 $18.39 = 8.70

Financial Statements for Larned Company Appear Below: Dividends