Computing Price Earnings Ratio Income Statement Statement Retained Earnings Balance Sheet Q17796876

Computing the Price-Earnings Ratio
The income statement, statement of retained earnings, andbalance sheet for Hallman Company are as follows:

HallmanCompanyIncome StatementFor the Year Ended December 31, 2014

Amount

Percent

Net sales
$8,281,989

100.0%

Less: Cost of goods sold
(5,383,293)

65.0

Gross margin
$2,898,696

35.0

Less: Operating expenses
(1,323,368)

16.0

Operating income
$1,575,328

19.0

Less: Interest expense
(50,000)

0.6

Netincome before taxes
$1,525,328

18.4

Less: Taxes (40%)*
(610,131)

7.4

Netincome
$915,197

11.0

* Includes both stateand federal taxes.

HallmanCompanyStatement of Retained EarningsFor the Year Ended December 31, 2014

Balance, beginning of period
$1,979,155

Net income
915,197

Total
$2,894,352

Less: Preferred dividends
(80,000)

Dividends to commonstockholders
(201,887)

Balance, end of period
$2,612,465

HallmanCompanyComparative Balance SheetsAt December 31, 2013 and 2014

2013

2014

Assets

Current assets:

Cash
$2,875,000

$2,580,000

Marketable securities
800,000

700,000

Accounts receivable (net)
939,776

690,000

Inventories
490,000

260,000

Other
93,000

74,261

Total current assets
$5,197,776

$4,304,261

Property andequipment:

Land
$1,575,000

$1,067,315

Building and equipment (net)
1,348,800

1,150,000

Total long-term assets
$2,923,800

$2,217,315

Total assets
$8,121,576

$6,521,576

Liabilities andstockholders’ equity

Currentliabilities:

Notes payable, short term
$1,170,127

$ 543,641

Accounts payable
298,484

101,500

Current maturity of long-termdebt
3,000

2,000

Accrued payables
200,000

57,780

Total current liabilities
$1,671,611

$ 704,921

Long-termliabilities:

Bonds payable, 10%
500,000

500,000

Total liabilities
$2,171,611

$1,204,921

Stockholders’equity:

Preferred stock, $25 par, 8%
$1,000,000

$1,000,000

Common stock, $1.50 par
337,500

337,500

Additional paid-in capital*
2,000,000

2,000,000

Retained earnings
2,612,465

1,979,155

Total equity
$5,949,965

$5,316,655

Total liabilities and stockholders’equity
$8,121,576

$6,521,576

* For common stock only.

Also, assume that the price per common share for Hallman Companyis $7.90.
Required:
Compute the price-earnings ratio. Round your answer andintermediate calculations to two decimal places.
 
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