Question

acg2071 managerial accounting section 26 instructor: petty requirement 11. compute the price/earnings ratio for both companies for the current year begin by selecting the formula to compute the price/earnings ratio price/earnings ratio = market price per share of common stock ÷ earnings per share now compute the price/earnings ratio for both companies. (round interim and final answers to two decimal places, x.xx.) electricity corp zone, inc. price/earnings ratio balance sheet and market price data common stock $1 par (11,000 shares) $1 par (21,000 shares) total stockholders equity market price per share of common stock dividends paid per common share 103,000 11,000 157,000 71.26 0.60 132,000 21,000 200,000 96.50 0.50 selected balance sheet data at the beginning of the current year electricity corp zone balance sheet accounts receivables, net merchandise inventory total assets common stock $1 par (11,000 shares) $1 par (21,000 shares) $ 38,000 $ 51,000 77,000 87,000 255,000 278,000 11,000 21,000 income statement data selected income statement data for the current year electricity corp zone net sales revenue (all on credit) $ 425,000 $ 498,000 cost of goods sold 208,000 280,000 interest expense 0 22,000 net income 96,000 76,000

Explanation:

Step 1: Calculate Earnings per Share (EPS) for Electricity Corp

EPS = Net Income / Number of Common Shares Outstanding. For Electricity Corp, Net Income = $56,000, Number of Shares = 11,000. So EPS = $\frac{56000}{11000} \approx 5.0909$.

Step 2: Calculate Price/Earnings Ratio for Electricity Corp

Price/Earnings Ratio = Market Price per Share / EPS. Market Price per Share = $71.26. So Ratio = $\frac{71.26}{5.0909} \approx 14.00$.

Step 3: Calculate Earnings per Share (EPS) for Zone, Inc.

For Zone, Inc., Net Income = $76,000, Number of Shares = 21,000. EPS = $\frac{76000}{21000} \approx 3.6190$.

Step 4: Calculate Price/Earnings Ratio for Zone, Inc.

Market Price per Share = $96.50. Ratio = $\frac{96.50}{3.6190} \approx 26.66$.

Answer:

Electricity Corp: 14.00, Zone, Inc.: 26.66