Effect of Financing on Earnings per Share Miller Co., which produces and sells s

Question

Effect of Financing on Earnings per Share Miller Co., which produces and sells skiing equipment, is financed as follows: Bonds payable, 10% (issued at face amount) $1,100,000 Preferred $1 stock, $10 par 1,100,000 Common stock, $25 par 1,100,000 Income tax is estimated at 40% of income. Determine the earnings per share on common stock, assuming that the income before bond interest and income tax is (a) $352,000, (b) $462,000, and (c) $572,000. Enter answers in dollars and cents, rounding to the nearest cent. a. Earnings per share on common stock b. Earnings per share on common stock c. Earnings per share on common stock

Explanation / Answer

1,350,000 / 25 = 54,000 Common shares outstanding 1,350,000 / 20 = 67,500 Preferred shares outstanding a) 567,000 Income before bond interrest and income tax -135,000 Bond Interest (1,350,000 x 10% x 1/2) = 432,000 - 172,800 Income Tax (432,000 x 40%) = 259,200 - 135,000 Preferred Dividends (67,500 x 2) = 124,200 124,200 / 54,000 = $2.30 Earnings Per Share Do the other two exactly the same

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