Effect of Financing on Earnings Per Share

Three different plans for financing a $6,200,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income.

Plan 1 Plan 2 Plan 3
10% bonds _ _ $3,100,000
Preferred 5% stock, $80 par _ $3,100,000 1,550,000
Common stock, $6.20 par $6,200,000 3,100,000 1,550,000
Total $ 6,200,000 $ 6,200,000 $ 6,200,000
Required:

1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $12,400,000. Enter answers in dollars and cents, rounding to the nearest cent.

Earnings Per Share on Common Stock
Plan 1 $
Plan 2 $
Plan 3 $
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $5,890,000. Enter answers in dollars and cents, rounding to the nearest cent.

Earnings Per Share on Common Stock
Plan 1 $
Plan 2 $
Plan 3 $
3. The principal 7 of Plan 1 is that it involves only the issuance of common stock, which does not require a periodic interest payment or return of principal, and a payment of preferred dividends Selectisis notItem 8 required.

Selected information about income statement accounts for the reed company is presented below (the company's fiscal year ends on december 31): 2018 2017sales $ 4,400,000 $ 3,500,000cost of goods sold 2,860,000 2,000,000administrative expenses 800,000 675,000selling expenses 360,000 312,000interest revenue 150,000 140,000interest expense 200,000 200,000loss on sale of assets of discontinued component 50,000 —on july 1, 2018, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by gaap. the assets of the component were sold on september 30, 2018, for $50,000 less than their book value. results of operations for the component (included in the above account balances) were as follows: 1/1/18-9/30/18 2017 sales $ 400,000 $ 500,000 cost of goods sold (290,000 ) (320,000 )administrative expenses (50,000 ) (40,000 )selling expenses (20,000 ) (30,000 )operating income before taxes $ 40,000 $ 110,000 in addition to the account balances above, several events occurred during 2018 that have not yet been reflected in the above accounts: a fire caused $50,000 in uninsured damages to the main office building. the fire was considered to be an infrequent but not unusual event.inventory that had cost $40,000 had become obsolete because a competitor introduced a better product. the inventory was sold as scrap for $5,000.income taxes have not yet been recorded.required: prepare a multiple-step income statement for the reed company for 2018, showing 2017 information in comparative format, including income taxes computed at 40% and eps disclosures assuming 300,000 shares of common stock. (amounts to be deducted should be indicated with a minus sign. round eps answers to 2 decimal places.)