# Domanico Co., which produces and sells biking equipment, is financed as follows: Bonds payable,...

## Question:

Domanico Co., which produces and sells biking equipment, is financed as follows: Bonds payable, 8% (issued at face amount) Preferred 5% stock, $10 par Common stock,$20 par Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is

a) $10,500,000 b)$11,800,000, and

c) $13,000,000. ## Earnings-Per-Share: Earnings-per-share(EPS) is the computation of earnings per share of common stockholders. It uses net income available to common stockholders. It presented as basic EPS and Diluted EPS ## Answer and Explanation: #### Computation of Earnings-per-share in all three situations: Description EBIT =$10,500,000 EBIT = $11,800,000 EBIT =$13,000,000
Income before interest and tax $10,500,000.00$11,800,000.00 $13,000,000.00 Less: Bond interest ($20,000,000 * 8%) $1,600,000.00$1,600,000.00 $1,600,000.00 Income before tax$8,900,000.00 $10,200,000.00$11,400,000.00
Less: Income tax @ 40% $3,560,000.00$4,080,000.00 $4,560,000.00 Net income$5,340,000.00 $6,120,000.00$6,840,000.00
Less: Preference dividend ($20,000,000 @ 5%)$1,000,000.00 $1,000,000.00$1,000,000.00
Net income available to common stockholders (A) $4,340,000.00$5,120,000.00 $5,840,000.00 Number of outstanding common stock shares (B)$1,000,000.00 $1,000,000.00$1,000,000.00
Earnings per share (A) / (B) $4.34$5.12 $5.84 Note: Capital Structure: Bonds capital (at face value) =$20,000,000

5% Preferred stock capital = $20,000,000 Common stock =$20,000,000 (at \$20 par) 