Alternative Financing Plans Frey Co. is considering the following alternative financing plans: Plan 1 Plan 2 $600,000 Issue 10% bonds (at face value) Issue preferred $1 stock, $10 par $1,200,000 - 1,200,000 1,000,000 Issue common stock, $5 par 800,000 Income tax is estimated at 40% of income. Determine the earnings per share on common stock, assuming that income before bond interest and income tax is $480,000. Enter answers in dollars and cents, rounding to two decimal places. Plan 1 Earnings per share on common stock Plan 2 Earnings per share on common stock Issuing Bonds at a Face Amount On January 1, the first day of the fiscal year, a company issues a $700,000, 10%, 10-year bond that pays semiannual interest of $35,000 ($700,000 x 10% x 12 year), receiving cash of $700,000. (a) Journalize the entry to record the issuance of the bonds. (b) Journalize the entry to record the first interest payment on June 30. (c) Journalize the entry to record the payment of the principal on the maturity date. Discount Amortization On the first day of the fiscal year, a company issues a $5,700,000, 9%, 4-year bond that pays semiannual interest of $256,500 ($5,700,000 x 9% x 12), receiving cash of $5,515,797. Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Issuing Bonds at a Premium On the first day of the fiscal year, a company issues a $5,500,000, 11%, 10-year bond that pays semiannual interest of $302,500 ($5,500,000 x 11% x 1/2), receiving cash of $5,842,710. Journalize the bond issuance. If an amount box does not require an entry, leave it blank. Premium Amortization On the first day of the fiscal year, a company issues a $5,600,000, 8%, 8-year bond that pays semiannual interest of $224,000 ($5,600,000 x 8% x 12), receiving cash of $5,938,634. Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. 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 $2 stock, $20 par Common stock, $25 par Income tax is estimated at 40% of income. $2,350,000 2,350,000 2,350,000 Determine the earnings per share on common stock, assuming that the income before bond interest and income tax is (a) $1,034,000, (b) $1,269,000, and (c) $1,504,000. Enter answers in dollars and cents, rounding to two decimal places. a. Earnings per share on common stock $ b. Earnings per share on common stock $ C. Earnings per share on common stock $
