Chapter 8, Problem 8.5.1MBA

To determine

Concept Introduction:

Financial statements:

Financial statements are prepared to summaries the account at the end of the period. The statements prepared are Income statement, Balance sheet, Statement of owner's equity and Cash flows statements.

Balance Sheet:

The Balance sheet is a summary of Assets, Liabilities and equity accounts that reports the financial position of the business as on a specific date. Assets are further classifies into Current Assets, Long Term Investments, Plant Assets and Intangible assets. And Liabilities are further classified into Current Liabilities and Long term liabilities.

Basic Earnings per share:

The Basic Earnings per share is the amount of net income earned by each common share outstanding. The Earnings per share calculated by with help of following formula:

  $\text{Basic Earnings per share=}\frac{\text{Net Income - Preferred Dividend}}{\text{Weighted Average Common Shares Outstanding}}$

  $\begin{array}{l} \hfill \\ NetIncomeavailabletocommonstockholder=Netincome–PreferredDividend\hfill \end{array}$

To Indicate:

The effect of purchase of treasury stock on Net Assets and Earnings per share