On December 31, 2022, the equity accounts of Book Creations, Inc., contained the following balances: Common stock ($10 par, 100,000 shares authorized) 30,000 shares issued and outstanding $300,000 Retained earnings $476,600 For the year 2022, the corporation had net income before income taxes of $176,300, income taxes of $35,260, and net income after taxes of $141,040. The corporation’s tax rate is 20 percent. An expansion of the existing plant at a cost of $564,300 is planned. The corporation’s president, who owns 60 percent of the corporation’s common stock, estimates that the expansion would result in an increased net income of approximately $176,300 before interest and taxes. The financial vice president forecasts that the increase would be only $88,150. Management is considering two possibilities for financing: Issuance of 20,000 additional shares of common stock for $29 per share. Issuance of $564,300 face amount, 10-year, 6 percent bonds payable, secured by a mortgage lien on the plant.
On December 31, 2022, the equity accounts of Book Creations, Inc., contained the following balances: Common stock ($10 par, 100,000 shares authorized) 30,000 shares issued and outstanding $300,000 Retained earnings $476,600 For the year 2022, the corporation had net income before income taxes of $176,300, income taxes of $35,260, and net income after taxes of $141,040. The corporation’s tax rate is 20 percent. An expansion of the existing plant at a cost of $564,300 is planned. The corporation’s president, who owns 60 percent of the corporation’s common stock, estimates that the expansion would result in an increased net income of approximately $176,300 before interest and taxes. The financial vice president forecasts that the increase would be only $88,150. Management is considering two possibilities for financing: Issuance of 20,000 additional shares of common stock for $29 per share. Issuance of $564,300 face amount, 10-year, 6 percent bonds payable, secured by a mortgage lien on the plant.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On December 31, 2022, the equity accounts of Book Creations, Inc., contained the following balances:
| Common stock ($10 par, 100,000 shares authorized) 30,000 shares issued and outstanding | $300,000 |
| $476,600 | |
For the year 2022, the corporation had net income before income taxes of $176,300, income taxes of $35,260, and net income after taxes of $141,040. The corporation’s tax rate is 20 percent.
An expansion of the existing plant at a cost of $564,300 is planned. The corporation’s president, who owns 60 percent of the corporation’s common stock, estimates that the expansion would result in an increased net income of approximately $176,300 before interest and taxes. The financial vice president
Management is considering two possibilities for financing:
- Issuance of 20,000 additional shares of common stock for $29 per share.
- Issuance of $564,300 face amount, 10-year, 6 percent bonds payable, secured by a mortgage lien on the plant.
Transcribed Image Text:Assume that the president's estimate of net income from the new plant is correct. Complete the following two-column table
for each plan.
Issuing
Common
Stock
Issuing
Bonds
a. Net income before interest and taxes
b. Total bond interest
Taxable income
c. Total income tax
d. Total income after tax
e. Present income after tax
f. Increase / Decrease in net income
g. Present EPS
h. Proposed EPS
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