t of Financing on Earnings Per Share e different plans for financing an $8,600,0

Question

t of Financing on Earnings Per Share e different plans for financing an $8,600,000 corporation are under consideration by its organizers of the following plans, the securities will be issued at their par or face amount, and the income tax mated at 40% of income: Plan 1 Plan 2 % bonds ferred 10% stock, $40 par mmon stock, $8.6 par Plan 3 $4,300,000 2,150,000 2,150,000 $4,300,000 $8 60,0004.300,000 Total $ 8,600,000 $8,600,000 $ 8,600,000 equired: Determine the earnings per share of common stock for each plan, assuming that the income before bon terest and income tax is $17,200,000. Enter answers in dollars and cents, rounding to the nearest cent. Earnings Per Share on Common Stock lan 1 Plan 2 Plan 3 2. Determine the earnings per share of common stock for each plan, assuming that the income before bond nterest and income tax is $8,170,000. Enter answers in dollars and cents, rounding to the nearest cent. Earnings Per Share on Common Stock Plan 1 Plan 2 Plan 3 3. The principal advantage of Plan 1 is that it involves only the issuance of common stock, which does not require a periodic interest payment or return of principal, and a payment of preferred dividends Previous Check My Work

Explanation / Answer

Journal entry :

a1) Cash A/C Dr 71000$
To Notes Payable A/C Cr 71000$
(Being cash received on borrowing of loan by way of note)

a2) Payment of First Instalement:
Interest Expenses A/C Dr 7810$
Notes payable A/C Dr 9250$
To Cash A/C Cr 17060$   

Calculation of Earning per share: Plan1 Plan2 Plan 3 Profit before Bond Interest and Tax($) 17200000 17200000 17200000 Bond Interest(4300000*10%) 0 0 430000 Assumed bonds are 10% bonds 17200000 17200000 16770000 Tax @ 40% 6880000 6880000 6708000 Profit after tax 10320000 10320000 10062000 Prefered dividend 0 430000 215000 Earnings available to Common stock 10320000 9890000 9847000 No of shares 1000000 500000 250000 Earning per share 10.32 19.78 39.388 Calculation of Earning per share: Plan1 Plan2 Plan 3 Profit before Bond Interest and Tax($) 8170000 8170000 8170000 Bond Interest(4300000*10%) 0 0 430000 Assumed bonds are 10% bonds 8170000 8170000 7740000 Tax @ 40% 3268000 3268000 3096000 Profit after tax 4902000 4902000 4644000 Prefered dividend@10% 0 430000 215000 Earnings available to Common stock 4902000 4472000 4429000 No of shares 1000000 500000 250000 Earning per share 4.90$ 8.94$ 17.72$

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