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Business
AccountingSurvey of Accounting (Accounting I)8th Edition

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Chapter 8, Problem 8.5.1C
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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

Solutions

Chapter
Section
Problem 1SEQ
Problem 2SEQ
Problem 3SEQ
Problem 4SEQ
Problem 5SEQ
Problem 1CDQ
Problem 2CDQ
Problem 3CDQ
Problem 4CDQ
Problem 5CDQ
Problem 6CDQ
Problem 7CDQ
Problem 8CDQ
Problem 9CDQ
Problem 10CDQ
Problem 11CDQ
Problem 12CDQ
Problem 13CDQ
Problem 14CDQ
Problem 15CDQ
Problem 16CDQ
Problem 17CDQ
Problem 18CDQ
Problem 8.1E
Problem 8.2E
Problem 8.3E
Problem 8.4E
Problem 8.5E
Problem 8.6E
Problem 8.7E
Problem 8.8E
Problem 8.9E
Problem 8.10E
Problem 8.11E
Problem 8.12E
Problem 8.13E
Problem 8.14E
Problem 8.15E
Problem 8.16E
Problem 8.17E
Problem 8.18E
Problem 8.19E
Problem 8.20E
Problem 8.21E
Problem 8.22E
Problem 8.23E
Problem 8.24E
Problem 8.1.1P
Problem 8.1.2P
Problem 8.1.3P
Problem 8.2.1P
Problem 8.2.2P
Problem 8.2.3P
Problem 8.2.4P
Problem 8.3.1P
Problem 8.3.2P
Problem 8.3.3P
Problem 8.3.4P
Problem 8.4P
Problem 8.5.1P
Problem 8.5.2P
Problem 8.5.3P
Problem 8.1.1MBA
Problem 8.1.2MBA
Problem 8.2.1MBA
Problem 8.2.2MBA
Problem 8.2.3MBA
Problem 8.3.1MBA
Problem 8.3.2MBA
Problem 8.3.3MBA
Problem 8.4MBA
Problem 8.5.1MBA
Problem 8.5.2MBA
Problem 8.6.1MBA
Problem 8.6.2MBA
Problem 8.6.3MBA
Problem 8.7MBA
Problem 8.8.1MBA
Problem 8.8.2MBA
Problem 8.8.3MBA
Problem 8.8.4MBA
Problem 8.8.5MBA
Problem 8.8.6MBA
Problem 8.8.7MBA
Problem 8.8.8MBA
Problem 8.9.1MBA
Problem 8.9.2MBA
Problem 8.9.3MBA
Problem 8.9.4MBA
Problem 8.9.5MBA
Problem 8.9.6MBA
Problem 8.9.7MBA
Problem 8.10.1MBA
Problem 8.10.2MBA
Problem 8.10.3MBA
Problem 8.10.4MBA
Problem 8.10.5MBA
Problem 8.10.6MBA
Problem 8.10.7MBA
Problem 8.10.8MBA
Problem 8.11MBA
Problem 8.1.1C
Problem 8.1.2C
Problem 8.2.1C
Problem 8.2.2C
Problem 8.3.1C
Problem 8.3.2C
Problem 8.4C
Problem 8.5.1C
Problem 8.5.2C
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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Financing business expansion
You hold a 30% common stock interest in the family-owned business, a vending machine company. Your sister, who is the manager, has proposed an expansion of plant facilities al an expected cost of $6,000,000. Two alternative plans have been suggested as methods of financing the expansion. Each plan is briefly described as follows:
Plan 1, Issue $6,000,000 of 15-year. 8% notes at face amount.
Plan 2. Issue an additional 100.000 shares of $20 par common stock at $25 per share, and $3,500,000 of 15-year. 8% notes at face amount.
The balance sheet as of the end of the previous fiscal year is as follows:


Net income has remained relatively constant over the past several years. The expansion program is expected to increase yearly income before bond interest and income tax from $900,000 in the previous year to $1,200,000 for this year. Your sister has asked you. as the company treasurer, to prepare an analysis of each financing plan.
Prepare a table- indicating the expected earnings per share on the common stock under each plan. Assume an income Lax rate of 25%-

To determine

Concept introduction:

Stock:

The stock, also known as shares, which gives equity ownership and rights in the company in regard to voting for policies and to share profits of the company is termed as stock. The stock is classified as two types, i.e., common and preferred stock.

Bonds:

It is a liability of the company which it has to pay after a certain time along with a fixed rate of interest. This is used by the company for the expansion of the businesses.

To prepare:

The table indicating expected earnings per share on the common stock under each plan.

Explanation

Expected earnings per share as Plan 1 :

    ParticularsAmount
    Income before bond interest and tax  $1,200,000
    Less: Bond interest
      ($6,000,000×0.08)    		  $480,000
    Profit before taxes  $720,000
    Less: Income taxes
      ($720,000×0.25)    		  $180,000
    Expected earnings after tax  $540,000

  Earning per share on common stock=Expected earnings after taxNumber of shares outstanding=$540,000400,000=$1

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Chapter 8,
Problem 8.4C
Chapter 8,
Problem 8.5.2C
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Chapter 8 Solutions

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Ch-8 P-1SEQCh-8 P-2SEQCh-8 P-3SEQCh-8 P-4SEQCh-8 P-5SEQCh-8 P-1CDQCh-8 P-2CDQCh-8 P-3CDQCh-8 P-4CDQCh-8 P-5CDQ
Ch-8 P-6CDQCh-8 P-7CDQCh-8 P-8CDQCh-8 P-9CDQCh-8 P-10CDQCh-8 P-11CDQCh-8 P-12CDQCh-8 P-13CDQCh-8 P-14CDQCh-8 P-15CDQCh-8 P-16CDQCh-8 P-17CDQCh-8 P-18CDQCh-8 P-8.1ECh-8 P-8.2ECh-8 P-8.3ECh-8 P-8.4ECh-8 P-8.5ECh-8 P-8.6ECh-8 P-8.7ECh-8 P-8.8ECh-8 P-8.9ECh-8 P-8.10ECh-8 P-8.11ECh-8 P-8.12ECh-8 P-8.13ECh-8 P-8.14ECh-8 P-8.15ECh-8 P-8.16ECh-8 P-8.17ECh-8 P-8.18ECh-8 P-8.19ECh-8 P-8.20ECh-8 P-8.21ECh-8 P-8.22ECh-8 P-8.23ECh-8 P-8.24ECh-8 P-8.1.1PCh-8 P-8.1.2PCh-8 P-8.1.3PCh-8 P-8.2.1PCh-8 P-8.2.2PCh-8 P-8.2.3PCh-8 P-8.2.4PCh-8 P-8.3.1PCh-8 P-8.3.2PCh-8 P-8.3.3PCh-8 P-8.3.4PCh-8 P-8.4PCh-8 P-8.5.1PCh-8 P-8.5.2PCh-8 P-8.5.3PCh-8 P-8.1.1MBACh-8 P-8.1.2MBACh-8 P-8.2.1MBACh-8 P-8.2.2MBACh-8 P-8.2.3MBACh-8 P-8.3.1MBACh-8 P-8.3.2MBACh-8 P-8.3.3MBACh-8 P-8.4MBACh-8 P-8.5.1MBACh-8 P-8.5.2MBACh-8 P-8.6.1MBACh-8 P-8.6.2MBACh-8 P-8.6.3MBACh-8 P-8.7MBACh-8 P-8.8.1MBACh-8 P-8.8.2MBACh-8 P-8.8.3MBACh-8 P-8.8.4MBACh-8 P-8.8.5MBACh-8 P-8.8.6MBACh-8 P-8.8.7MBACh-8 P-8.8.8MBACh-8 P-8.9.1MBACh-8 P-8.9.2MBACh-8 P-8.9.3MBACh-8 P-8.9.4MBACh-8 P-8.9.5MBACh-8 P-8.9.6MBACh-8 P-8.9.7MBACh-8 P-8.10.1MBACh-8 P-8.10.2MBACh-8 P-8.10.3MBACh-8 P-8.10.4MBACh-8 P-8.10.5MBACh-8 P-8.10.6MBACh-8 P-8.10.7MBACh-8 P-8.10.8MBACh-8 P-8.11MBACh-8 P-8.1.1CCh-8 P-8.1.2CCh-8 P-8.2.1CCh-8 P-8.2.2CCh-8 P-8.3.1CCh-8 P-8.3.2CCh-8 P-8.4CCh-8 P-8.5.1CCh-8 P-8.5.2C

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