Question

Consider Brighton’s results for Year 0 (see excel click here). The sales forecast for Year 1 is given in excel. In addition, Brighton plans on paying dividends of $20,000 in Year 1, they have 40,000 shares of common stock outstanding and for simplification, assume their tax expense is 35% of EBT. For Year 1, forecast Brighton’s:

1. Basic Earnings per common share (rounded to the nearest cent).
2. Retained earnings (rounded to the nearest dollar).

Brighton Company
	Year 0	Year 1
Cash	50,000.00
Accounts Receivable	275,000.00
Inventory	350,000.00
Net PP&E	800,000.00
Total Assets	1,475,000.00
Accounts Payable	80,000.00
Notes Payable	190,000.00
Common Stock	40,000.00
Treasury Stock	(10,000.00)
Additional Paid-in Capital	100,000.00
Retained Earnings	1,100,000.00
Accumulated OCI	(25,000.00)
Total Liab and Equity	1,475,000.00
Sales	1,000,000.00	1,200,000.00
Variable Expenses	(600,000.00)
Contribution Margin	400,000.00
Fixed Expenses	(150,000.00)
Operating Income	250,000.00
Nonrecurring Gain	75,000.00
Tax Expense	(113,750.00)
Net Income	211,250.00

Answer 1

1. Basic Earnings per common share = Net income / shares of common stock outstanding

= $211,250 / 40,000

= $ 5.28 per share

2.

Ending Retained Earnings Calculation
	$
Beginning Retained earnings	1,100,000.00
Add: Net income	211,250.00
Less: Dividends	(20,000.00)
Ending Retained earnings	1,291,250.00