1.

To determine

Calculate earnings per share of common stock for each plan, if income before bond interest and income tax is $2,100,000. ### Explanation of Solution Bonds: Bonds are long-term promissory notes that are represented 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(EPS)=Net income Preferred dividends Number of common shares outstanding Determine Earnings per share of common stock.  Particulars Plan 1 Plan 2 Plan 3 Net income before interest on bonds and income tax$2,100,000 $2,100,000$2,100,000 Less: Interest on bonds - - $720,000(1) Income before income tax$2,100,000 $2,100,000$1,380,000 Less: Income tax expense $840,000(2)$840,000(2) $552,000(3) Net income$1,260,000 $1,260,000$828,000 Dividends on preferred stock - $360,000(4)$180,000(5) Available for dividends on common stock $1,260,000$900,000 $648,000 Number of common stock outstanding ÷1,800,000(6) ÷900,000(7) ÷450,000(8) Earnings per share of common stock$0.70 $1.00$1.44

Table (1)

Working notes:

(1)

Calculate interest on bonds for plan 3.

Interest expense=Facevalueofbonds×Rate of Interest= $9,000,000×8%=$720,000

(2)

Calculate income tax expense for plan 1 and plan 2.

Income tax expense=(Incomebeforeincometax×Incometaxpercentage)=$2,100,000×40%=$840,000

(3)

Calculate income tax expense for plan 3

2.

To determine

Calculate earnings per share of common stock for each plan, if income before bond interest and income tax is \$1,050,000.

3.

To determine

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