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Chapter 2: Q8BP (page 49)

Prepare an income statement for Franklin Kite Co. Take your calculations all the way to computing earnings per share.

Sales
$900,000
Shares outstanding
50,000
Cost of goods sold
400,000
Interest expenses
40,000
Selling and administration expenses
60,000
Depreciation expenses
20,000
Preferred stock dividend
80,000
Taxes
50,000

Short Answer

Expert verified

The earning per share is $5.

Step by step solution

01

Earning per share

Earning per share is computed to know the company’s earnings for each share of its stockand is widely used by the users of the organization for estimating the corporate values.

02

Income statement for Franklin Kite Co.

Particulars

Amount ($)

Sales

900,000

Less: Cost of goods sold

400,000

Gross profit

500,000

Less: Selling and administrative expenses

60,000

Less: Depreciation expenses

20,000

Less: Interest Expenses

40,000

Operating income

380,000

Less:Taxes

50,000

Net income after tax

330,000

Less: Preferred stock dividend

80,000

Income available for shareholders

250,000

No. of shares outstanding

50,000

Earnings per Share

5

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Most popular questions from this chapter

Stein Books Inc. sold 1,900 finance textbooks for \(250 each to High Tuition University in 20X1. These books cost \)210 to produce. Stein Books spent \(12,200 (selling expense) to convince the university to buy its books. Depreciation expense for the year was \)15,200. In addition, Stein Books borrowed $104,000 on January 1, 20X1, on which the company paid 12 percent interest. Both the interest and principal of the loan were paid on December 31, 20X1. The publishing firm’s tax rate is 30 percent. Did Stein Books make a profit in 20X1? Please verify with an income statement.

a. Swank Clothiers had sales of \(383,000 and cost of goods sold of \)260,000. What is the gross profit margin (ratio of gross profit to sales)?

b. If the average firm in the clothing industry had a gross profit of 25 percent,

how is the firm doing?

Elite Trailer Parks has an operating profit of \(200,000. Interest expense for the year was \)10,000; preferred dividends paid were \(18,750; and common dividends paid were \)30,000. The tax was $61,250. The firm has 20,000 shares of common stock outstanding.

a. Calculate the earnings per share and the common dividends per share for

Elite Trailer Parks.

b. What was the increase in retained earnings for the year?

For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:

Current assets

Liabilities

Cash

\(15,000

Accounts payable

\)17,000

Accounts receivable

20,000

Notes payable

25,000

Inventory

30,000

Bonds payable

55,000

Prepaid expenses

12,500

Fixed assets

Stockholder’s equity

Plant and equipment (gross)

Less: accumulated depreciation

\(255,000

51,000

Preferred stock

\)25,000

Net plant and equipment

\(204,000

Common stock

60,000

Paid in capital

30,000

Retained earnings

69,500

Total assets

\)281,500

Total liabilities and stockholder’s equity

\(281,500

Sales for 20X2 were \)245,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was \(24,500. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 20 percent.

\)2,500 in preferred stock dividends were paid, and \(5,500 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.

During 20X2, the cash balance and prepaid expenses balances were

unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 20X2, at a cost of \)40,000. Accounts payable increased by 20 percent. Notes payable increased by \(6,500 and bonds payable decreased by \)12,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.

c. Prepare a balance sheet as of December 31, 20X2.

Given the following information, prepare an income statement for Jonas Brothers Cough Drops.

Selling and administrative expenses

$328,000

Depreciation expenses

195,000

Sales

1,660,000

Interest expenses

129,000

Cost of goods sold

560,000

Taxes

171,000
See all solutions

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