Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883



Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Effect of financing on earnings per share

Three different plans for financing a $5,000,000 corporation are under consideration hy its organizers. I'nder each of the following plans, the securities will be issued at their par or face amount, and the income, tax rate is estimated at 40% of income

Determine for each plan the earnings per share of common Stock, assuming thai the income before bond interest and income tax is $300,000.

To determine

Concept Introduction:

Basic Earnings per share:

The Basic Earnings per share is the amount of net income earned by each common share outstanding. The Earnings per share calculated by with help of following formula:

  Basic Earnings per share=Net Income - Preferred DividendWeighted Average Common Shares Outstanding

   Net Income available to common stockholder = Net income  Preferred Dividend

To Calculate:

The earnings per share for each plan


The earnings per share for each plan are calculated as follows:

    Plan 1 Plan 2 Plan 3
    Income before interest and tax (A) $ 300,000 $ 300,000 $ 300,000
    Interest on Bonds (B) $ - $ - $ 200,000
    Income before tax (C) = (A-B) $ 300,000 $ 300,000 $ 100,000
    Income Tax (D) = (C*40%) $ 120,000 $ 120,...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

How should the capital structure weights used to calculate the WACC be determined?

Fundamentals of Financial Management (MindTap Course List)

Conciseness es valued in business. However, can messages be too short?

Essentials of Business Communication (MindTap Course List)

This chapter discusses the discounted dividend and corporate valuation models for valuing common stocks. Two al...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is Miamis living wage rate?


Why is actual costing rarely used for product costing?

Cornerstones of Cost Management (Cornerstones Series)