In: Accounting
Carla Vista Co. has $1,190,000 in assets and $1,190,000 in stockholders’ equity, with 35,800 shares outstanding the entire year. It has a return on assets of 10%. During 2021, it had net income of $119,000. On January 1, 2022, it issued $380,000 in debt at 4% and immediately repurchased 17,900 shares for $380,000. Management expected that, had it not issued the debt, it would have had net income of $119,000 in 2022. Assume the company pays dividends on common stock equal to its net income each year. Also, assume the accrued interest on the debt was paid at December 31, 2022 and the company has no other debt outstanding at year-end.
Determine the company’s net income and earnings per share for
2021 and 2022. (Ignore taxes in your computations.)
(Round earnings per share to 2 decimal places, e.g.
$2.66.)
2021 |
2022 |
|||
---|---|---|---|---|
Net income |
$enter net income in dollars | $enter net income in dollars | ||
Earnings per share |
$enter earnings per share in dollars rounded to 2 decimal places | $enter earnings per share in dollars rounded to 2 decimal places |
Compute the company’s return on common stockholders’ equity for
2021 and 2022. (Round answers to 2 decimal places, e.g.
15.25%)
2021 |
2022 |
|||||
---|---|---|---|---|---|---|
Return on common stockholders’ equity |
enter return on common stockholders’ equity ratio in percentages rounded to 0 decimal places | % | enter return on common stockholders’ equity ratio in percentages rounded to 0 decimal places | % |
Compute the company’s debt to assets ratio for 2021 and 2022.
(Round answers to 2 decimal places, e.g.
15.25%)
2021 |
2022 |
||||
---|---|---|---|---|---|
Debt to assets ratio |
enter debt to assets ratio in percentages rounded to 0 decimal places | % | enter debt to assets ratio in percentages rounded to 0 decimal places | % |
# Calculation Of net income and Earning per share
2021 | 2022 | |
Net Assets opening | $1190000 | $1190000 |
Net Income(Net asset opening*10% | $119000 | $119000 |
Less- Interest | $0 |
=$380000*4% =$15200 |
Net Income After Interest | $119000 | =$103800 |
Nos of shares outstanding | 35800 |
=35800-17900 =17900 shares |
EPS |
=$119000/35800 =$3.32 Per share |
=$103800/17900 =$5.80 per share |
Dividend Paid | $119000 | $103800 |
Closing Net assets |
= Opening net assets+Net income-dividend =$1190000+$119000-$119000 =$1190000 |
= Opening net assets+Net income-dividend =$1190000+$103800-$103800 =$1190000 |
Final Answer
2021 | 2022 | |
Net Income | $119000 | $103800 |
Earning Per share | $3.32 | $5.80 |
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# Computation the company’s return on common stockholders’ equity-
Return on Common Equity Stakeholders Equity = Net income / Common stake holder equity
2021 | 2021 | |
Net Income(A) | $119000 | $103800 |
Common stake holders equity(B) | $1190000 |
=$1190000-$380000 =$810000 |
Return on Common Equity(A/B-*100) |
=$119000/$1190000*100 =10% |
=$103800/$810000*100 =$12.81% |
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#Calculation of Debt to equity ratio
Debt to equity ratio = Total liabilities / Total Common stake holders equity
2021 | 2022 | |
Debt | $0 | $380000 |
Other Libilities | $0 | $0 |
Total Debt or Liabilities(A) | $0 | $380000 |
Total Common stake holders Equity | $1190000 | $810000 |
Debt equity ratio (in %) |
=$0/$1190000*100 =0.00% |
=$380000/$810000*100 =$46.91% |