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 dividend payout ratio for Year 2 was closest to:
A)75.8%
B)28.5%
C)76.7%
D)47.4%

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 dividend payout ratio for Year 2 was closest to:
A)75.8% 
B)28.5% 
C)76.7% 
D)47.4%

Quizplus · Accepted Answer

Number of common shares outstanding = Common stock F1F1F1S1F1F1F10 Par value
= $180 F1F1F1S1F1F1F10 $10 per share = 18 shares
Dividends per share = Common dividends F1F1F1S1F1F1F10 Common shares
= ($263 - $12)F1F1F1S1F1F1F10 18 shares = $13.94 per share
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
Dividend payout ratio = Dividends per share F1F1F1S1F1F1F10 Earnings per share
= $13.94 F1F1F1S1F1F1F10 $18.39 = 75.8%

Financial Statements for Larned Company Appear Below: Dividends