Answer:
Issuing Stock Issuing Bonds
Net income $573,300 $361,620
Earnings per share $3.79 $3.97
Explanation:
Calculation to determine the effect on net income and earnings per share for issuing stock and issuing bonds.
ISSUING STOCK ISSUING BONDS
Income before interest and taxes
$819,000 $819,000
Interest ($2,520,000 x 12%) $0 $302,400
Income before taxes $819,000 $516,600
($819,000-$302,400=$516,600)
Income tax expense (30%) $245,700 $154,980
(30%*$819,000=$245,700)
(30%*$516,600=$154,980)
NET INCOME $573,300 $361,620
($819,000-$245,700=$573,300)
($516,600-$154,980=$361,620)
Outstanding shares 151,100 91,100
(60,000shares+91,100 shares=151,100)
Earnings per share $3.79 $3.97
($573,300/151,100=$3.79)
($361,620/91,100=$3.97)
Therefore the effect on net income and earnings per share for issuing stock and issuing bonds are :
Issuing Stock Issuing Bonds
Net income $573,300 $361,620
Earnings per share $3.79 $3.97
