3. On May 1, 10,000 shares of $10 par common stock were issued at $30, and on May 7, 5,000 shares of $50 par preferred stock were issues at $111. Journalize the entries for May 1 and May 7.

ANS:

4. Sorenson Co., is considering the following alternative plans for financing their company:

Plan I Plan II

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Issue 10% Bonds (at face) --------- $3,000,000

Issue $10 par Common Stock $4,000,000 $1,000,000

Income tax is estimated at 40% of income

Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

ANS:

Earnings before bond interest and income tax
Bond interest expense
Income before tax expense
Income tax
New income
Dividends on preferred stock
Earnings available for common stock
Number of common shares