Accounting (Text Only)
26th Edition
ISBN: 9781285743615
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 14.1APR
1.
To determine
Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.
Common stock: It refers to a security issued in a form of certificate and implies the right of ownership of an investor over a portion of company’s earnings and assets.
Earnings per Share: It is a portion of profit that is earned by each common stock.
Formula:
To Determine: Earnings per share of common stock for each plan, if income before bond interest and income tax is $2,100,000.
2.
To determine
Earnings per share of common stock for each plan, if income before bond interest and income tax is $1,050,000.
3.
To determine
To describe: The advantages and disadvantages of each plans.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Effect of Financing on Earnings Per Share
Three different plans for financing an $7,100,000 corporation are under consideration by its organizers. Under 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:
Plan 1
Plan 2
Plan 3
10% Bonds
Preferred 10% stock, $40 par
Common stock, $7.1 par
Total
Plan L
Plan 2
Plan 3
Earnings Per
Share on
Common Stock
0.79 X
0.92 X
$7.100,000
$7,100,000
Required:
1. Determine the samnings per ahara ot.common stack for each plan, assuming that the income before hond interest and income
las is $14,200.000 Enter answers in dollars and cents, rounding to two decimal places.
3.72
$3,550,000
3,550,000
$7,100,000
$3,550,000
1,775,000
1,775,000
$7.100,000
Effect of Financing on Earnings Per Share
Three different plans for financing an $18,000,000 corporation are under consideration by its organizers. Under 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:
8% Bonds
Preferred 4% stock, $20 par
Common stock, $10 par
Total
Plan 1
Plan 2
Plan 3
$9,000,000
$18,000,000
$9,000,000
9,000,000
4,500,000
4,500,000
$ 18,000,000
$ 18,000,000
$ 18,000,000
Required:
1. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $2,100,000. Enter answers in dollars and cents, rounding to the nearest
whole cent.
Plan 1
Plan 2
Plan 3
Earnings Per
Share on
Common Stock
2. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $1,050,000. Enter answers in dollars and cents, rounding to the nearest
whole cent.
Plan 1
Plan 2
Plan…
Effect of Financing on Earnings Per Share
Three different plans for financing an $6,000,000 corporation are under consideration by its organizers. Under 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:
Plan 1
Plan 2
Plan 3
10% Bonds
_
_
$3,000,000
Preferred 10% stock, $40 par
_
$3,000,000
1,500,000
Common stock, $6 par
$6,000,000
3,000,000
1,500,000
Total
$ 6,000,000
$ 6,000,000
$ 6,000,000
Required:
1. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $12,000,000. Enter answers in dollars and cents, rounding to two decimal places.
Earnings Per Share on Common Stock
Plan 1
$
Plan 2
Plan 3
2. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $5,700,000. Enter answers in dollars…
Chapter 14 Solutions
Accounting (Text Only)
Ch. 14 - Describe the two distinct obligations incurred by...Ch. 14 - Explain the meaning of each of the following terms...Ch. 14 - If you asked your broker to buy you a 12% bond...Ch. 14 - Prob. 4DQCh. 14 - If bonds issued by a corporation are sold at...Ch. 14 - The following data relate to a 2,000,000, 8% bond...Ch. 14 - Bonds Payable has a balance of 5,000,000, and...Ch. 14 - What is a mortgage note?Ch. 14 - Fleeson Company needs additional funds to purchase...Ch. 14 - In what section of the balance sheet would a bond...
Ch. 14 - Prob. 14.1APECh. 14 - Alternative financing plans Brower co. is...Ch. 14 - Prob. 14.2APECh. 14 - Issuing bonds at face amount On January 1, the...Ch. 14 - Issuing bonds at a discount On the first day of...Ch. 14 - Issuing bonds at a discount On the first day of...Ch. 14 - Prob. 14.4APECh. 14 - Prob. 14.4BPECh. 14 - Prob. 14.5APECh. 14 - Prob. 14.5BPECh. 14 - Prob. 14.6APECh. 14 - Prob. 14.6BPECh. 14 - A Redemption of bonds payable A 1,500,000 bond...Ch. 14 - Prob. 14.7BPECh. 14 - Journalizing installment notes On the first day of...Ch. 14 - Journalizing installment notes On the first day of...Ch. 14 - Prob. 14.9APECh. 14 - Prob. 14.9BPECh. 14 - Effect of financing on earnings per share Domanico...Ch. 14 - Evaluate alternative financing plans Based on the...Ch. 14 - Prob. 14.3EXCh. 14 - Prob. 14.4EXCh. 14 - Entries for issuing bonds Gabriel Co. produces and...Ch. 14 - Prob. 14.6EXCh. 14 - Prob. 14.7EXCh. 14 - Prob. 14.8EXCh. 14 - Entries for issuing and calling bonds; gain Emil...Ch. 14 - Entries for installment note transactions On the...Ch. 14 - Prob. 14.11EXCh. 14 - Prob. 14.12EXCh. 14 - Reporting bonds At the beginning of the current...Ch. 14 - Prob. 14.14EXCh. 14 - Prob. 14.15EXCh. 14 - Prob. 14.16EXCh. 14 - Present value of amounts due Tommy John is going...Ch. 14 - Prob. 14.18EXCh. 14 - Prob. 14.19EXCh. 14 - Prob. 14.20EXCh. 14 - Prob. 14.21EXCh. 14 - Present value of bonds payable; premium Moss Co....Ch. 14 - Prob. 14.23EXCh. 14 - Appendix2 Amortize premium by interest method...Ch. 14 - Prob. 14.25EXCh. 14 - Prob. 14.26EXCh. 14 - Prob. 14.1APRCh. 14 - Prob. 14.2APRCh. 14 - Prob. 14.3APRCh. 14 - Entries for bonds payable and installment note...Ch. 14 - Prob. 14.5APRCh. 14 - Prob. 14.6APRCh. 14 - Effect of financing on earnings per share Three...Ch. 14 - Prob. 14.2BPRCh. 14 - Prob. 14.3BPRCh. 14 - Prob. 14.4BPRCh. 14 - Prob. 14.5BPRCh. 14 - Prob. 14.6BPRCh. 14 - Prob. 14.1CPCh. 14 - Ethics and professional conduct in business Solar...Ch. 14 - Prob. 14.3CPCh. 14 - Prob. 14.4CPCh. 14 - Prob. 14.5CPCh. 14 - Times interest earned The following financial data...
Knowledge Booster
Similar questions
- Effect of Financing on Earnings Per Share Three different plans for financing a $5,900,000 corporation are under consideration by its organizers. Under 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. Plan 1 Plan 2 Plan 3 10% bonds _ _ $2,950,000 Preferred 10% stock, $100 par _ $2,950,000 1,475,000 Common stock, $4 par $5,900,000 2,950,000 1,475,000 Total $5,900,000 $5,900,000 $5,900,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000. Earnings per share of common stock Plan 1 $fill in the blank 1 per share Plan 2 $fill in the blank 2 per share Plan 3 $fill in the blank 3 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest…arrow_forward2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $650,000. Earnings per share of common stock per share per share per share Plan 1 Plan 2 Plan 3 +A +A +Aarrow_forwardUlmer Company is considering the following alternative financing plans: Plan 1 Plan 2 Issue 8% bonds at face value $2,000,000 $1,000,000 Issue preferred stock, $15 par — 1,500,000 Issue common stock, $10 par 2,000,000 1,500,000 Income tax is estimated at 35% of income. Dividends of $1 per share were declared and paid on the preferred stock. Determine the earnings per share of common stock, assuming income before bond interest and income tax is $600,000. Round your answers to two decimal places. Earnings per Shareon Common Stock Plan 1 $fill in the blank 1 Plan 2 $fill in the blank 2arrow_forward
- Subject :- Accounting Three plans for financing a $28,500,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount and the income tax rate is estimated at 30%. 9% Bonds 6% Preferred Stock, $100 par Common Stock, $10 par Total Plan 1 Net income $28,500,000 $28,500,000 Earnings per share on common stock Plan 2 $ $14,250,000 $ 14,250,000 It is estimated that income before interest and taxes will be $7,125,000. $28,500,000 $14,250,000 Determine for each plan, the expected net income and the earnings per share on common stock. (Round earnings per share to 2 decimal places, e.g. 2.25.) Plan 1 Plan 3 7,125,000 $28,500,000 $ 7,125,000 Plan 2 $ $ Plan 3arrow_forwardChapter 14 Three different plans for financing a $18,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 25% of income. Plan 1 Plan 2 Plan 3 5% bonds $7,000,000 Preferred 4% stock, $40 par $10,000,000 7,000,000 Common stock, $10 par $18,000,000 8,000,000 4,000,000 $18,000,000 $18,000,000 $18,000,000 a. Determine for each plan the earnings per share of common stock, assuming that the income before. bond interest and income tax is $1,400,000. b. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,000,000. c. Discuss the advantages and disadvantages of each plan. Show your calculations.arrow_forwardQuestion Content Area Jenson Co. is considering the following alternative plans for financing the company: Plan 1 Plan 2 Issue 10% bonds (at face) — $2,000,000 Issue $10 common stock $3,000,000 1,000,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000. Round your answers to two decimal places. Earnings per Shareon Common Stock Plan 1 $fill in the blank 1 Plan 2 $fill in the blank 2arrow_forward
- Chapter 8 Effect of Financing on Earnings Per Share Three different plans for financing a $5,900,000 corporation are under consideration by its organizers. Under 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. Plan 1 Plan 2 Plan 3 10% bonds $2,950.000 Preferred 10% stock, $100 par $2,950,000 1,475,000 Common stock, $4 par $5,900,000 2,950,000 1,475,000 Total $5,900,000 $5,900,000 $5,900,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000. Earnings per share of common stock Plan 1 per share Plan 2 per share Plan 3 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. Earnings per share of common stock Plan 1 per share Plan 2 per share Plan 3 per share 3.…arrow_forwardXYZ Company is considering the following financing plans. Plan 1 Plan 2 Plan 3 Bonds, 10% $3,000,000 Preferred stock, $100 par, 1% $2,000,000 $1,000,000 Common stock, $10 par $5,000,000 3,000,000 $1,000,000 $5,000,000 $5,000,000 $5,000,000 The company has earnings before interest and taxes of $750,000 and assumes a tax rate of 40%. Calculate earnings per share for each plan.arrow_forwardXYZ Company is considering the following financing plans. Plan 1 Plan 2 Plan 3 Bonds, 10% $3,000,000 Preferred stock, $100 par, 1% $2,000,000 $1,000,000 Common stock, $10 par $5,000,000 3,000,000 $1,000,000 $5,000,000 $5,000,000 $5,000,000 The company has earnings before interest and taxes of $750,000 and assumes a tax rate of 40%. Calculate the earnings per share for each plan. Plan 1 Plan 2 Plan 3 EBIT Interest EBT Taxes Net income Preferred div. Avail. for common Common shares Earnings per sharearrow_forward
- XYZ Company is considering the following financing plans. Plan 1 Plan 2 Plan 3 Bonds, 10% $3,000,000 Preferred stock, $100 $2,000,000 $1,000,000 par, 1% Common stock, $10 $5,000,000 3,000,000 $1,000,000 par $5,000,000 $5,000,000 $5,000,000 The company has earnings before interest and taxes of $750,000 and assumes a tax rate of 40%. Calculate the earnings per share for each plan. Plan 1 Plan 2 Plan 3 ΕΒΙΤ Interest EBT Таxes Net income Preferred div. Avail. for common Common shares Earnings per sharearrow_forwardFrey Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 10% bonds (at face value) $1,600,000 $800,000 Issue preferred $1 stock, $10 par — 1,330,000 Issue common stock, $5 par 1,600,000 1,070,000 Income tax is estimated at 40% of income. Determine the earnings per share on common stock, assuming that income before bond interest and income tax is $480,000. Enter answers in dollars and cents, rounding to two decimal places. Plan 1 $ Earnings per share on common stock Plan 2 $ Earnings per share on common stockarrow_forwardFrey Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 5% bonds (at face value) $6,000,000 $2,000,000 Issue preferred $1 stock, $20 par Issue common stock, $25 par 6,000,000 6,000,000 4,000,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond interest and income tax is $800,000.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning