The balance sheets at the end of each of the first two years of operations indic

Question

The balance sheets at the end of each of the first two years of operations indicate the following: 2013 2012 Total current assets $600,000 $560,000 Total investments 60,000 40,000 Total property, plant, and equipment 900,000 700,000 Total current liabilities 125,000 80,000 Total long-term liabilities 350,000 250,000 Preferred 9% stock, $100 par 100,000 100,000 Common stock, $10 par 600,000 600,000 Paid-in capital in excess of par--common stock 60,000 60,000 Retained earnings 325,000 210,000 Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2013, what are the earnings per share on common stock for 2013 (round to two decimal places)?

Explanation / Answer

Particulars Amount($) ----------------------------------------------- Net Income = 1,30,000 less Interest Expense 40,000 ----------------------------------------------- Profit after Interest before Tax = 90,000 Tax (assuming not tax) = 0 ----------------------------------------------- Profit after tax = 90,000 less: Preferential dividend = 9,000 (100000 x 9% ) ----------------------------------------------- Profit available for Shareholders = 81,000 ----------------------------------------------- Total equity stock(given Common stock, $10 par ) = 6,00,000 / 10 = 60,000 shares Earnings per share = $81,000 / 60,000 = $1.35 per share

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