Question

Frantic Fast Foods had earnings after taxes of $1,190,000 in 20X1 with 399,000 shares outstanding. On January 1, 20X2, the firm issued 27,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 24 percent.

a. Compute earnings per share for the year 20X1. (Round your answer to 2 decimal places.)
  

b. Compute earnings per share for the year 20X2. (Round your answer to 2 decimal places.)
  

Prepare an income statement for Franklin Kite Co. Take your calculations all the way to computing earnings per share. (Round EPS answer to 2 decimal places.)
  

Sales	$	1,630,000
Shares outstanding		171,000
Cost of goods sold		630,000
Interest expense		21,000
Selling and administrative expense		45,000
Depreciation expense		34,000
Preferred stock dividends		82,000
Taxes		110,000

Elite Trailer Parks has an operating profit of $285,000. Interest expense for the year was $30,500; preferred dividends paid were $28,900; and common dividends paid were $36,800. The tax was $68,500. The firm has 21,600 shares of common stock outstanding.  

a. Calculate the earnings per share and the common dividends per share for Elite Trailer Parks. (Round your answers to 2 decimal places.)  
  

b. What was the increase in retained earnings for the year?  
  

Quantum Technology had $726,000 of retained earnings on December 31, 20X2. The company paid common dividends of $32,600 in 20X2 and had retained earnings of $503,000 on December 31, 20X1.

a. How much did Quantum Technology earn during 20X2?
  

b. What would earnings per share be if 46,400 shares of common stock were outstanding? (Round your answer to 2 decimal places.)
  

Botox Facial Care had earnings after taxes of $340,000 in 20X1 with 200,000 shares of stock outstanding. The stock price was $74.80. In 20X2, earnings after taxes increased to $378,000 with the same 200,000 shares outstanding. The stock price was $83.00.

a. Compute earnings per share and the P/E ratio for 20X1. (The P/E ratio equals the stock price divided by earnings per share.) (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
  

b. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
  

c. Why did the P/E ratio change? (Do not round intemediate calculations. Input your answers as percents rounded to 2 decimal places.)
  

Stilley Corporation had earnings after taxes of $590,000 in 20X2 with 250,000 shares outstanding. The stock price was $46.10. In 20X3, earnings after taxes declined to $265,000 with the same 250,000 shares outstanding. The stock price declined to $32.30.

a. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
  

b. Compute earnings per share and the P/E ratio for 20X3. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
  

The Rogers Corporation has a gross profit of $724,000 and $283,000 in depreciation expense. The Evans Corporation also has $724,000 in gross profit, with $48,400 in depreciation expense. Selling and administrative expense is $243,000 for each company.  

a. Given that the tax rate is 40 percent, compute the cash flow for both companies.
  

   

b. Calculate the difference in cash flow between the two firms.

Answer 1

Frantic Fast Foods

a. earnings per share for the year 20X1 = earnings after taxes/shares outstanding = $1,190,000/399,000 = $2.98

b. in year 20X2, earnings after taxes increased by 24%. So earnings for 20X2 is earnings of 20X1*(1+rate of increase) = $1,190,000*(1+0.24) = $1,190,000*1.24 = $1,475,600

in year 20X2, 27,000 new shares were issued. so shares outstanding in 20X2 will be shares outstanding in 20X1 + new shares issued = 399,000 + 27,000 = 426,000

earnings per share for the year 20X2 = $1,475,600/426,000 = $3.46

Franklin Kite Co.

Earnings after taxes = Sales - cost of goods sold - Selling and administrative expense - depreciation expense - interest expense - taxes = $1,630,000 - $63,000 - $45,000 - $34,000 - $21,000 - $110,000 = $1,357,000

Earnings per share = earnings after taxes/shares outstanding = $1,357,000/171,000 = $7.94

Preferred stock dividends are paid from earnings after taxes and remaining amount is paid as dividend to common stockholders or transferred to retained earnings.