Balance sheets for P Company and S Company on August 1, 2014, are as follows: P Company S CompanyCash 165500 106000Receivables 3
66000 126000Inventory 261000 108000Investment in bonds 306000 0Investment in S Company stock 586500 0Plant and equiptmnet (net) 573000 320000Land 200000 300000Total 2458000 960000Accounts Payable 174000 58000Accrued expenses 32400 26000Bonds Payable 8% 0 200000Common Stock 1500000 460000Other Contributed capital 260000 60000Retained earnings 491600 156000Total 2458000 960000Prepare a workpaper for a consolidated balance sheet for P Company and its subsidiary on August 1, 2014, taking into consideration the following:1. P Company acquired 90% of the outstanding common stock of S Company on August 1, 2014, for a cash payment of $586,500.2. Included in the Investment in Bonds account are $40,000 par value of S Company bonds payable that were purchased at par by P Company in 2002. The bonds pay interest on April 30 and October 31. S Company has appropriately accrued interest expense on August 1, 2014; P Company, however, inadvertently failed to accrue interest income on the S Company bonds.
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Answer: Option (C) is correct.
Explanation:
Given that,
Old market price of stock = $15
New market price of stock = $18
Here, we assume that EPS be $5.
So,
Price-earning ratio at old price =
=
= 3
Price-earning ratio at New price =
=
= 3.6
Hence, price-earnings ratio increases.