Question

The following data is to be used in questions number 24-25.

The data of companies which do not have preferred stock as of December 31 are known as follows:

Liquid assets: 87,000

Stockholder's equity: 60,000

Realized capital gains and losses: 15,000

Investment income: 7,000

Total liabilities: 75,000

Number of common share outstanding: 1,200

ROE (before extraordinary item): 15.3%

24. If it is known that the company experienced extraordinary loss (net) of 600, determine

value of net earnings per share (choose the closest).

A. Less than or equal to 6.5

B. More than 6.5 and less than or equal to 7.0

C. More than 7.0 and less than or equal to 7.5

D. More than 7.5 and less than or equal to 8.0

E. More than 8.0

25. The company revaluates non-liquid assets such that an increase is obtained

stockholder’s equity of 9%. In addition it also found an error sign

(positive / negative) in the extraordinary item report (refer to problem number 24), which

should be gain (net). Determine the value of ROE (after extraordinary item) based on data

which has been updated (select the closest).

A. Less than or equal to 13%

B. More than 13% and less than or equal to 13%

C. More than 14% and less than or equal to 15%

D. More than 15% and less than or equal to 16%

E. More than 16%

Answer 1

24)
Particulars	Nos/Units	Sr No
ROE before extraordinary item	15.30%	A
Shareholders Equity	60000	B
Earnings (A * B)	9180	C
extraordinary loss (net)	600	D
Earnings (C - D) after Loss	8580	E
No of shares	1200	F
Value of Net Earnings per Share	7.15
Therefore, option C is correct.
C. More than 7.0 and less than or equal to 7.5
25)
Liabilities	Rs./$	Assets	Rs./$
Stockholder's equity	60,000	Liquid assets	87,000
Total liabilities	75,000	Non Liquid Assets*	48,000
Total	135,000		135,000
* = Balancing figure
Earnings (C - D) after Loss	8,580	From E Above
Correction of Extraordinary item (600 *2)	1,200	G
9% increase in the Non Liquid assets on account of revaluation (9% of 48000)	4,320	H
Updated Earnings (E + G +H)	14,100	I
Revised ROE	24%	J
Therefore, option E is correct.
E. More than 16%