At the end of 2005, the Long Life Light Bulb Company announced it had produced a

Question

At the end of 2005, the Long Life Light Bulb Company announced it had produced a gross profit of $1 million. The company has also established that over the course of this year it has incurred $345,000 in operating expenses and $125,000 in interest expenses. The company is subject to a 30% tax rate and has declared $57,000 total preferred stock dividends.
(a) How much is the earnings available for common stockholders?
(B) Compute the increased retained earnings for 2005 if the company were to declare a $4.25 common stock dividend. The company has 15,000 shares of common stock outstanding.

Explanation / Answer

a. earnings available for common stockholders =(1000000- $345,000-$125,000)*(1-30%) = $371,000.00 b. increased retained earnings =$371,000.00 - $4.25*15000 = $307,250.00

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