2. Sharp and Townson had capital balances of $60,000 and $90,000 respectively at

Question

2. Sharp and Townson had capital balances of $60,000 and $90,000 respectively at fiscal year. Th allowance of int income divided equally. Net income for the current year was $100, the beginning of the current e articles of partnership provide for salary allowances of $25,000 and $30,000 respectively, an rest at 12% on the capital balances at the beginning of the year, with the remaining net 000. (a) Present the income division for the current year for each partner. Assuming that the net income had been $50,000 instead of $100,000, present the income division section of the income statement for the current year. (b) 3. Ulmer Company is considering the following alternative financing plans: Plan 1 $2,000,000 Plan 2 $1,000,000 1,500,000 1,500,000 Issue 8% bonds at face value Issue preferred stock, $15 par Issue common stock, $10 par 2,000,000 Income tax is estimated at 35% of income. Dividends of $1 per share were declared and paid on the prefe stock Required: Determine the earnings per share of common stock, assuming income before bond interest an income tax is $600,000

Explanation / Answer

Particulars Plan 1 Plan 2 Profit before interest and tax 600000 600000 Interest on bonds 160000 80000 Profit before tax 440000 520000 Tax @ 35% 154000 182000 Profit after tax 286000 338000 Preference dividend @ $1 150000 Earnings of common stock holders 286000 188000 Total number of common stock 2000000 1500000 EPS 0.143 0.125333

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