F the first year PR 14-1A Effect of financing on earnings per share Three differ
ID: 2333746 • Letter: F
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F the first year PR 14-1A Effect of financing on earnings per share Three different plans for financi by its organizers. Under each of par or face amount, and the income tax rate is estimat OBJ. ng an $18,000,000 corporation are under consideration the following plans, the securities will be issued at their ed at 40% of income: Plan 1 8% Bonds Preferred 4% stock. S20 par Common stock, $10 par Plan 2 Plan 3 4,500,000 4,500,000 $18,000,000 18.000,0009000,000 900,00 9,000,000 18,000,000 18000,000 Instructions 1. 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 3.Discuss the advantages and disadvantages of each plan. income before bond interest and income tax is $1,050,000. OBJ.2,3 Bond discount, entries for bonds payable transactions Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a PR 14-2A market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. 2. Journalize the entries to record the following: g the straight-line method. Round to the nearest dollar. Continued al interest payment on December 31, Year 1, and the amortization a. The first semiannuExplanation / Answer
PR 14-1A
What we have done here to calculate EPS here is that first calculate EBIT (which is given) from EBIT deduct interest component of corporate bonds and than deduct 40% of tax from the remaining amount to get net income. From this net income we shall deduct preference share dividend to get earnings available. This earnings available is divided by number of shares to get EPS
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PART 1 plan 1 plan 2 plan 3 EBIT $2,100,000 $2,100,000 $2,100,000 Interest 0 0 $720,000 EBT $2,100,000 $2,100,000 $1,380,000 Tax(40%) $840,000 $840,000 $552,000 Net income $1,260,000 $1,260,000 $828,000 Preferred dividend paid 0 $360,000 $180,000 Earning available to common stockholders $1,260,000 $900,000 $648,000 Number of common stock 1,800,000 900,000 450,000 Earning per share to common stockholders $0.70 $1.00 $1.44Related Questions
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