Financial Accounting
14th Edition
ISBN: 9781305088436
Author: Carl Warren, Jim Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 1PB
1.
To determine
Calculate earnings per share of common stock for each plan, if income before bond interest and income tax is $10,000,000.
2.
To determine
Calculate earnings per share of common stock for each plan, if income before bond interest and income tax is $6,000,000.
3.
To determine
Describe the advantages and disadvantages of each plan.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Three different plans for financing an $18,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income:
Please see the attachment for details:
Instructions1. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $2,100,000.2. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $1,050,000.3. Discuss the advantages and disadvantages of each plan.
Three different plans for financing an $80,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income:
Please see the attachment for details:
Instructions1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $10,000,000.2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $6,000,000.3. Discuss the advantages and disadvantages of each plan.
Three different plans for financing a $7,400,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax
rate is estimated at 40% of income.
Plan 1
Plan 2
Plan 3
10% bonds
$3,700,000
Preferred 10% stock, $100 par
$3,700,000
1,850,000
Common stock, $7.4 par
$7,400,000
3,700,000
1,850,000
Total
$7,400,000
$7,400,000
$7,400,000
Round the answers to nearest cent.
Instructions:
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $14,800,000.
Earnings per share of common stock
Plan 1
$
per share
Plan 2
$1
per share
Plan 3
$4
per share
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $7,030,000.
Earnings per share of common stock
Plan 1
24
per share
Plan 2
$4
per share
Plan 3
$
per share
Chapter 14 Solutions
Financial Accounting
Ch. 14 - Describe the two distinct obligations incurred by...Ch. 14 - Explain the meaning of each of the following terms...Ch. 14 - If you asked your broker to buy you a 12% bond...Ch. 14 - A corporation issues 26,000,000 of 9% bonds to...Ch. 14 - If bonds issued by a corporation are sold at a...Ch. 14 - Prob. 6DQCh. 14 - Bonds Payable has a balance of 5,000,000, and...Ch. 14 - What is a mortgage note?Ch. 14 - Fleeson Company needs additional funds to purchase...Ch. 14 - In what section of the balance sheet would a bond...
Ch. 14 - Prob. 1PEACh. 14 - Brower Co. is considering the following...Ch. 14 - On January 1, the first day of the fiscal year, a...Ch. 14 - On January 1, the first day of the fiscal year, a...Ch. 14 - On the first day of the fiscal year, a company...Ch. 14 - On the first day of the fiscal year, a company...Ch. 14 - Prob. 4PEACh. 14 - Prob. 4PEBCh. 14 - On the first day of the fiscal year, a company...Ch. 14 - On the first day of the fiscal year, a company...Ch. 14 - Prob. 6PEACh. 14 - Prob. 6PEBCh. 14 - A 1,500,000 bond issue on which there is an...Ch. 14 - A 500,000 bond issue on which there is an...Ch. 14 - On the first day of the fiscal year, a company...Ch. 14 - On the first day of the fiscal year, a company...Ch. 14 - Prob. 9PEACh. 14 - Prob. 9PEBCh. 14 - Prob. 1ECh. 14 - Prob. 2ECh. 14 - Prob. 3ECh. 14 - Prob. 4ECh. 14 - Prob. 5ECh. 14 - On the first day of its fiscal year, Pretender...Ch. 14 - Lerner Corporation wholesales repair products to...Ch. 14 - Prob. 8ECh. 14 - Emil Corp. produces and sells wind-energy-driven...Ch. 14 - On the first day of the fiscal year, Shiller...Ch. 14 - Prob. 11ECh. 14 - On January 1, 2016, Bryson Company obtained a...Ch. 14 - Prob. 13ECh. 14 - Prob. 14ECh. 14 - Prob. 15ECh. 14 - Prob. 16ECh. 14 - Tommy John is going to receive 1,000,000 in three...Ch. 14 - Prob. 18ECh. 14 - On January 1, 2016, you win 50,000,000 in the...Ch. 14 - Prob. 20ECh. 14 - Prob. 21ECh. 14 - Prob. 22ECh. 14 - Prob. 23ECh. 14 - Prob. 24ECh. 14 - Prob. 25ECh. 14 - Boyd Co. produces and sells aviation equipment. On...Ch. 14 - Prob. 1PACh. 14 - Prob. 2PACh. 14 - Saverin Inc. produces and sells outdoor equipment....Ch. 14 - The following transactions were completed by...Ch. 14 - Prob. 5PACh. 14 - Saverin, Inc. produces and sells outdoor...Ch. 14 - Prob. 1PBCh. 14 - Prob. 2PBCh. 14 - Prob. 3PBCh. 14 - The following transactions were completed by...Ch. 14 - Prob. 5PBCh. 14 - Prob. 6PBCh. 14 - General Electric Capital, a division of General...Ch. 14 - Solar Industries develops and produces...Ch. 14 - Prob. 3CPCh. 14 - Xentec Inc. has decided to expand its operations...Ch. 14 - Prob. 5CPCh. 14 - The following financial data (in thousands) were...
Knowledge Booster
Similar questions
- Three different plans for financing an $2,100,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income: Plan 1 Plan 2 Plan 3 10% Bonds _ _ $1,050,000 Preferred 5% stock, $80 par _ $1,050,000 525,000 Common stock, $2.1 par $2,100,000 1,050,000 525,000 Total $ 2,100,000 $ 2,100,000 $ 2,100,000 Required: 1. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $4,200,000. Enter answers in dollars and cents, rounding to two decimal places. Earnings Per Share on Common Stock Plan 1 $fill in the blank 1 Plan 2 fill in the blank 2 Plan 3 fill in the blank 3 2. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $1,995,000. Enter answers in…arrow_forwardThree different plans for financing a $2,200,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income. Plan 1 Plan 2 Plan 3 10% bonds $1,100,000 Preferred 10% stock, $100 par $1,100,000 550,000 Common stock, $2.2 par $2,200,000 1,100,000 550,000 Total $2,200,000 $2,200,000 $2,200,000 Round the answers to nearest cent.arrow_forwardSubject :- Accounting Three plans for financing a $28,500,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount and the income tax rate is estimated at 30%. 9% Bonds 6% Preferred Stock, $100 par Common Stock, $10 par Total Plan 1 Net income $28,500,000 $28,500,000 Earnings per share on common stock Plan 2 $ $14,250,000 $ 14,250,000 It is estimated that income before interest and taxes will be $7,125,000. $28,500,000 $14,250,000 Determine for each plan, the expected net income and the earnings per share on common stock. (Round earnings per share to 2 decimal places, e.g. 2.25.) Plan 1 Plan 3 7,125,000 $28,500,000 $ 7,125,000 Plan 2 $ $ Plan 3arrow_forward
- Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond interest and income tax is 2,000,000.arrow_forwardJune Co. is considering the following alternative plans for financing the company: Issue 10% bonds (at face) Issue common stock, $10 par Plan I Plan I Plan II $3,000,000 $4,000,000 1,000,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000. Round your answers to two decimal places. Plan II 00arrow_forwarda. Determine the annual before-tax interest cost for each company in dollars. b. Determine the annual after-tax interest cost for each company in dollars. (Round your answers to the nearest dollar amount.) c. Determine the annual after-tax interest cost for each company as a percentage of the face value of the bonds. (Round your answers to 1 decimal place.)arrow_forward
- Sorenson Co. is considering the following alternative plans for financing the company: Plan 1 Plan 2 Issue 10% bonds (at face) $3,000,000 Issue $10 par common stock $4,000,000 1,000,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000. Round your answers to two decimal places. Earnings Per Common Share Plan 1 Plan 2arrow_forwardSee attachmentarrow_forwardABC is all-equity financed and has net sales of $217,800, taxable income of $32,600, a return on assets of 11.5 percent, a tax rate of 21 percent, and total debt of $63,700. What are the values for the three components of the DuPont identity? a. 10.24 percent; 1.0282; .7156 b. 11.82 percent; .9725; 1.3975 O c. 11.82 percent: .9725; 7156 O d. 11.82 percent; 1.0282; 1.3975 e. 10.24 percent; 1.0282; 1.3975arrow_forward
- Sorenson Co. is considering the following alternative plans for financing the company: Plan 1 Plan 2 Issue 10% Bonds (at face) - $80,000 Issue $10 par Common Stock $120,000 $40,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $30,000. Round your answers to two decimal places.arrow_forwardKingbird, Inc. is considering these two alternatives to finance its construction of a new $1.00 milion plant: 1. Issuance of 100,000 shares of common stock at the market price of $10 per share. 2. Issuance of $1.00 million, 5% bonds at face value. Complete the table. (Round earnings per share to 2 decimal places, e.g. $2.66.) Issue Stock Issue Bonds Income before interest and taxes $1,500,000 $1,500,000 Interest expense from bonds Income before income taxes Income tax expense (30%) Net income Outstanding shares 600,000 Earnings per share $ %24 %24 %24 %24arrow_forwardDomanico Co., which produces and sells biking equipment, is financed as follows: 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) 600,000, (b) 800,000, and (c) 1,200,000.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning