Question

Effect of Financing on Earnings per Share Domanico Co., which produces and sells biking equipment, is financed as follows: Bonds payable, 10% (issued at face amount) Preferred $1 stock, $10 par Common stock, $25 par $850,000 850,000 850,000 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) $314,500, (b) $399,500, and (c) $484,500. Enter answers in dollars and cents, rounding to two decimal places a. Earnings per share on common stock s b. Earnings per share on common stocks c. Earnings per share on common stock

Answer 1

Earning Per Share on common stock
	Particulars	Case a	Case b	Case c
A	Income Before Bond Interest & Income Tax	$                3,14,500	$         3,99,500	$         4,84,500
B	Less Bond Interest (850000*10%)	$                   85,000	$             85,000	$             85,000
C	Income Bfore Tax	$                2,29,500	$         3,14,500	$         3,99,500
D	Tax Expenses (40%*C)	$                   91,800	$         1,25,800	$         1,59,800
E	Net Income (C-D)	$                1,37,700	$         1,88,700	$         2,39,700
F	Preferred Dividend	$                   85,000	$             85,000	$             85,000
	(850000/$10*$1)
G	Net Income Available to Common Stock	$                   52,700	$         1,03,700	$         1,54,700
H	Number Of Common Shares Outstanding	34000	34000	34000
	($850000/25)
I	Earning Per Share (G/H)	$                        1.55	$                 3.05	$                 4.55