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) $1,200,000 Preferred $1 stock, $10 par 1,200,000 Common stock, $25 par 1,200,000 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) $468,000, (b) $588,000, and (c) $708,000. 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

Earning before income tax                                  468,000          588,000             708,000

Less: Bond interest (12,00,000*10%)                          120,000          120,000             120,000

Profit befor tax                                                           348,000          468,000              588,000

Tax expense @ 40 %                                                139,200          187,200              235,200

Profit after tax                                                            208,800          280,800             352,800

Preference stock dividend                                           120,000          120,000               120,000

(12,00,000/10*1)

Earnings available to common stock holders                  88,800           160,800              232,800

Number of common stock (12,00,000/25)                        48,000            48,000                 48,000

Earning per share on common stock                                  1.85             3.35                     4.85

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