# Chapter_2_-_Moodle_Ready - Chapter 2 Problems 2-A Sosa Diet...

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Chapter 2 Problems 2-A. Sosa Diet Supplements had earnings after taxes of \$800,000 in the year 2008 with 200,000 shares of stock outstanding. On January 1, 2009, the firm issued 50,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 30 percent. a. Compute earnings per share for the year 2008. b. Compute earnings per share for the year 2009. 2-A. Solution: Sosa Diet Supplements a. Year 2008 Earnings after taxes Earnings per share = Shares outstanding \$800,000 = = \$4.00 200,000 b. Year 2009 Earnings after taxes \$800,000 1.30 \$1,040,000 Shares outstanding 200,000 50,000 250,000 \$1,040,000 Earning per share \$4.16 250,000 = = = + = = = S2-1

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2-B. Prepare in good form an income statement for Franklin Kite Co., Inc. 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 expense. ..................................................................... 40,000 Selling and administrative expense. ....................................... 60,000 Depreciation expense. ............................................................ 20,000 Preferred stock dividends. ...................................................... 80,000 Taxes. ..................................................................................... 120,000 2-B. Solution: Franklin Kite Company Income Statement Sales. .............................................................. \$900,000 Cost of goods sold. ........................................ 400,000 Gross profit. ............................................... 500,000 Selling and administrative expense. .............. 60,000 Depreciation expense. .................................... 20,000 Operating profit. ........................................ \$420,000 Interest expense. ............................................ 40,000 Earnings before taxes. ............................... \$380,000 Taxes. ............................................................. 120,000 Earnings after taxes. .................................. \$260,000 Preferred stock dividends. ............................. 80,000 Earnings available to common stockholders. 180,000 Shares outstanding. ........................................ 50,000 Earnings per share. ......................................... \$3.60 S2-2
2-C. Elite Trailer Parks has an operating profit or \$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.

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Chapter_2_-_Moodle_Ready - Chapter 2 Problems 2-A Sosa Diet...

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