Fowler Company reported these figures for 2018and 2017: Data table: 2017 2018Income Statement—partial: Net Income$18,200$25,000 Dec. 31, 2018Dec. 31, 2017Balance Sheet—partial: Total Assets$265,000$275,000Paid-In Capital: Preferred Stock—5%, $6 Par Value; 55,000 shares$84,000$84,000authorized, 14,000 shares issued and outstanding Common Stock—$3 Par Value; 70,000 shares105,000105,000authorized; 35,000 shares issued and outstanding Paid-In Capital in Excess of Par—Common5,0005,000Retained Earnings59,00045,000Total Stockholders' Equity$253,000$239,000 Requirements: Compute Fowler Company's earnings per share for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest cent.Compute Fowler Company's price/earnings ratio for 2018. Assume the company's market price per share of common stock is $4. Round to two decimals.Compute Fowler Company's rate of return on common stockholders' equity for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest whole percent. ### Earnings Per Share (EPS) and Price/Earnings Ratio Computation#### Requirement 1: Compute Fowler Company's Earnings Per Share for 2018Assume that Fowler Company paid the minimum preferred dividend during 2018. Round your answer to the nearest cent.**EPS Formula**\[ \text{Earnings Per Share} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Average Number of Common Shares Outstanding}} \]**Data Provided:**- Net Income: $18,200- Preferred Dividends: $3,200- Average Number of Common Shares Outstanding: 35,000**Calculation:**\[ \text{Earnings Per Share} = \frac{18,200 - 3,200}{35,000} = \frac{15,000}{35,000} = 0.40 \]Therefore, the Earnings Per Share (EPS) for Fowler Company for 2018 is $0.40.#### Requirement 2: Compute Fowler Company's Price/Earnings Ratio for 2018Assume that the company's market price per share of common stock is $4. Round your answer to two decimals.**Price/Earnings Ratio Formula:**\[ \text{Price/Earnings Ratio} = \frac{\text{Market Price Per Share}}{\text{Earnings Per Share}} \]**Data Provided:**- Market Price Per Share: $4- Earnings Per Share: $0.40 (calculated from Requirement 1)**Calculation:**\[ \text{Price/Earnings Ratio} = \frac{4}{0.40} = 10 \]Therefore, the Price/Earnings (P/E) Ratio for Fowler Company for 2018 is 10.00. ### ExplanationIn Requirement 1, the Earnings Per Share (EPS) is calculated by subtracting preferred dividends from net income, and then dividing the result by the average number of common shares outstanding. This provides a measure of the company's profitability on a per-share basis.In Requirement 2, the Price/Earnings Ratio is calculated by dividing the market price per share by the earnings per share. The P/E Ratio is a valuation metric that compares the company's current share price to its per-share earnings, indicating how much investors are willing to pay per dollar of earnings.

Working notes: Preferred dividends =14,000 shares x $6 par x 5% = $4,200 Average # common…

Fowler Company reported these figures for 2018and 2017: Data table: 2017 2018 Income Statement—partial: Net Income $18,200 $25,000 Dec. 31, 2018 Dec. 31, 2017 Balance Sheet—partial: Total Assets $265,000 $275,000 Paid-In Capital: Preferred Stock—5%, $6 Par Value; 55,000 shares $84,000 $84,000 authorized, 14,000 shares issued and outstanding Common Stock—$3 Par Value; 70,000 shares 105,000 105,000 authorized; 35,000 shares issued and outstanding Paid-In Capital in Excess of Par—Common 5,000 5,000 Retained Earnings 59,000 45,000 Total Stockholders' Equity $253,000 $239,000 Requirements: Compute Fowler Company's earnings per share for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest cent. Compute Fowler Company's price/earnings ratio for 2018. Assume the company's market price per share of common stock is $4. Round to two decimals. Compute Fowler Company's rate of return on common stockholders' equity for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest whole percent.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Fowler Company reported these figures for 2018and 2017:

Data table: 2017

	2018
Income Statement—partial:
Net Income	$18,200	$25,000
	Dec. 31, 2018	Dec. 31, 2017
Balance Sheet—partial:
Total Assets	$265,000	$275,000
Paid-In Capital:
Preferred Stock—5%, $6 Par Value; 55,000 shares	$84,000	$84,000
authorized, 14,000 shares issued and outstanding
Common Stock—$3 Par Value; 70,000 shares	105,000	105,000
authorized; 35,000 shares issued and outstanding
Paid-In Capital in Excess of Par—Common	5,000	5,000
Retained Earnings	59,000	45,000
Total Stockholders' Equity	$253,000	$239,000

Requirements:

Compute Fowler Company's earnings per share for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest cent.
Compute Fowler Company's price/earnings ratio for 2018. Assume the company's market price per share of common stock is $4. Round to two decimals.
Compute Fowler Company's rate of return on common stockholders' equity for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest whole percent.

### Earnings Per Share (EPS) and Price/Earnings Ratio Computation

#### Requirement 1: Compute Fowler Company's Earnings Per Share for 2018
Assume that Fowler Company paid the minimum preferred dividend during 2018. Round your answer to the nearest cent.

**EPS Formula**
\[ \text{Earnings Per Share} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Average Number of Common Shares Outstanding}} \]

**Data Provided:**
- Net Income: $18,200
- Preferred Dividends: $3,200
- Average Number of Common Shares Outstanding: 35,000

**Calculation:**
\[ \text{Earnings Per Share} = \frac{18,200 - 3,200}{35,000} = \frac{15,000}{35,000} = 0.40 \]

Therefore, the Earnings Per Share (EPS) for Fowler Company for 2018 is $0.40.

#### Requirement 2: Compute Fowler Company's Price/Earnings Ratio for 2018
Assume that the company's market price per share of common stock is $4. Round your answer to two decimals.

**Price/Earnings Ratio Formula:**
\[ \text{Price/Earnings Ratio} = \frac{\text{Market Price Per Share}}{\text{Earnings Per Share}} \]

**Data Provided:**
- Market Price Per Share: $4
- Earnings Per Share: $0.40 (calculated from Requirement 1)

**Calculation:**
\[ \text{Price/Earnings Ratio} = \frac{4}{0.40} = 10 \]

Therefore, the Price/Earnings (P/E) Ratio for Fowler Company for 2018 is 10.00.

### Explanation
In Requirement 1, the Earnings Per Share (EPS) is calculated by subtracting preferred dividends from net income, and then dividing the result by the average number of common shares outstanding. This provides a measure of the company's profitability on a per-share basis.

In Requirement 2, the Price/Earnings Ratio is calculated by dividing the market price per share by the earnings per share. The P/E Ratio is a valuation metric that compares the company's current share price to its per-share earnings, indicating how much investors are willing to pay per dollar of earnings.

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