Chapter 14, Problem 14.1APR

1.

To determine

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Common stock: It refers to a security issued in a form of certificate and implies the right of ownership of an investor over a portion of company’s earnings and assets.

Earnings per Share: It is a portion of profit that is earned by each common stock.

Formula:

$\text{Earnings per share}\left(\text{EPS}\right)=\frac{\text{Net income }-\text{Preferred dividends}}{\text{ Number of common shares outstanding}}$

To Determine: Earnings per share of common stock for each plan, if income before bond interest and income tax is $2,100,000.

2.

To determine

Earnings per share of common stock for each plan, if income before bond interest and income tax is $1,050,000.

3.

To determine

To describe: The advantages and disadvantages of each plans.