PR 12-1A Effect of financing on earnings per shareThree different plans for financing an $18,000,000 corporation are under consideratioby its organizers. Under each of the following plans, the securities will be issued at theirnar or face amount, and the income tax rate is estimated at 40% of income:Plan 1Plan 2Plan 38% Bonds$ 9,000,000Preferred 4% stock, $20 parCommon stock, $10 par$ 9,000,0009,000,000$18,000,0004,500,000$18,000,000$18,000,0004,500,000$18,000,000TotalInstructions1. Determine the earnings per share of common stock for each plan, assuming that theincome before bond interest and income tax is $2,100,000.2. Determine the earnings per share of common stock for each plan, assuming that theincome before bond interest and income tax is $1,050,000.3.Discuss the advantages and disadvantages of each plan.OBJ. 2, 3

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Description: PR 12-1A Effect of financing on earnings per shareThree different plans for financing an $18,000,000 corporation are under consideratioby its organizers. Under each of the following plans, the securities will be issued at theirnar or face amount, an

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Effect PR 12-1A Three different plans for financing an $18,000. by its organizers. Under each of the following plans, the securities will be E or face amount, and the income tax rate is estimated at 40% of income: Plan 1 Plan 2 Plan 3 8% Bonds $ 9,000,000 4,500,000 ebl noiroo $ 9,000,000 Preferred 4% stock, $20 par Common stock, $10 par $18,000,000 $18,000,000 9,000,000 $18,000,000 4,500,000 $18,000,000 Total na that the

Effect PR 12-1A Three different plans for financing an $18,000. by its organizers. Under each of the following plans, the securities will be E or face amount, and the income tax rate is estimated at 40% of income: Plan 1 Plan 2 Plan 3 8% Bonds $ 9,000,000 4,500,000 ebl noiroo $ 9,000,000 Preferred 4% stock, $20 par Common stock, $10 par $18,000,000 $18,000,000 9,000,000 $18,000,000 4,500,000 $18,000,000 Total na that the

FINANCIAL ACCOUNTING

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Chapter1: Financial Statements And Business Decisions

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lm aldeg alwolk EX 12-1 Effect of financing on earnings per share OBJ. 1 54 Domanico Co., which produces and sells biking equipment, is financed as follows: Bonds payable, 8% (issued at face amount) Preferred $5 stock, $10 par Common stock, $20 par $10,000,000 10,000,000 10,000,000 PLpoug biemo 1000 (llob Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a) $10,500,000, (b) $11,800,000, and (c) $13,000,000.
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