Answered: Issue Bonds Issue Stock Operating…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter3: Review Of A Company's Accounting System

Section: Chapter Questions

Problem 7E: Basic Income Statement The following are selected account balances of Rule Corporation at the end of...

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Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $17 million gaming center:

a. Issue $17 million of 6% bonds at face amount.
b. Issue 1 million shares of common stock for $17 per share.

Required:
1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answer in dollars, not millions. (i.e., $5.5 million should be entered as 5,500,000). Round your "Earnings per Share" to 2 decimal places. Round your "Earnings per Share" to 2 decimal places.)

Issue Bonds
Issue Stock
Operating income
9,200,000 $
9,200,000
Interest expense (bonds only)
Income before tax
Income tax expense (30%)
Net income
Number of shares
2,200,000
3,200,000
Earnings per share

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