# Domanico Co., which produces and sells biking equipment, is financed as follows: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a) $600,000, (b)$800,000, and (c) $1,200,000. BuyFindarrow_forward ### Financial Accounting 15th Edition Carl Warren + 2 others Publisher: Cengage Learning ISBN: 9781337272124 #### Solutions Chapter Section BuyFindarrow_forward ### Financial Accounting 15th Edition Carl Warren + 2 others Publisher: Cengage Learning ISBN: 9781337272124 Chapter 14, Problem 1E Textbook Problem 6 views ## Domanico Co., which produces and sells biking equipment, is financed as follows:Income tax is estimated at 40% of income.Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a)$600,000, (b) $800,000, and (c)$1,200,000.

a)

To determine

Calculate earnings per share of common stock.

### Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Common stock: It refers to a security issued in a form of certificate and implies the right of ownership of an investor over a portion of company’s earnings and assets.

Earnings per Share: It is a portion of profit that is earned by each common stock.

Formula:

Earnings per share=Net income Preferred dividends Number of common shares outstanding

Determine Earnings per share of common stock, if income before bond interest and income tax is $600,000.  Particulars Net income before interest on bonds and income tax$600,000 Less: Interest on bonds $300,000(1) Income before income tax$300,000 Less: Income tax expense $120,000(2) Net income$180,000 Dividends on preferred stock $100,000(3) Available of dividends on common stock$80,000 Number of common stock outstanding ÷200,000(4) Earnings per share of common stock $0.40 Table (1) Working notes: (1) Calculate interest on bonds. Interest expense=Facevalueofbonds×Rate of Interest=$5,000,000×6%=\$300,000

(2)

Calculate income tax expense

b)

To determine

Calculate earnings per share of common stock.

c)

To determine

Calculate Earnings per share of common stock.

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