Question

Use the following to answer questions 16-18:

Cumulus, Inc. began the period with 1,000,000 shares of stock outstanding. By the end of the period, they had managed to sell an additional 300,000 shares. Preferred stock made up 20% of the number of shares outstanding at the beginning of the period and 50% of the shares sold during the period. Each share of preferred stock sells for $20 and must be paid a 7% dividend on that sales price each year, including the year it was issued.

The following information comes from Cumulus' current income statement:

Advertising Expense		$      95,000
Cost of Goods Sold		$     500,000
Depreciation		$      75,000
Dividend Revenue		$      22,500
Gain on Sale of Land		$     115,000
Income Tax Expense		$      45,000
Insurance Expense		$        4,750
Interest Expense		$      66,000
Loss on Sale of Equipment		$        5,000
Miscellaneous Expense		$        3,500
Sales		$     850,000
Sales Discounts		$      17,000
Sales Returns		$      65,000
Utilities Expense		$      15,000
Wages Expense		$     100,000

16. What is Cumulus' net income for the period? (AC 13)

17. What is Cumulus' weighted average shares of common stock for the period? (AC 13)

18. What is Cumulus' basic EPS for the period? Please round to the nearest penny (AC 13)

Answer 1

16) Net Income:
Sales	$850,000
Less: Sales discounts	($17,000)
Less: Sales Returns	($65,000)
Net Sales	$768,000
Less: Cost of Goods Sold	($500,000)
Gross Profit	$268,000
Less: Operating expenses:
Wages Expense	($100,000)
Depreciation	($75,000)
Insurance expense	($4,750)
Loss on sale of equipment	($5,000)
Miscellaneous expenses	($3,500)
Utilities Expense	($15,000)
Interest expense	($66,000)
Operating Income (Loss)	($1,250)
Add: Other Income:
Dividend Revenue	$22,500
Gain on sale of Land	$115,000
Income before income tax	$136,250
Less: Income tax expense	($45,000)
Net Income	$91,250
* Advertising expense is treated as capital expenditure, hence, it will not charge to current period.
17)
Common stock shares issued in the beginning of the period	1,000,000
Add: sold during the period	300,000
Total weighted average common shares at the end of the period	1,300,000
18)
Net Income	$91,250
Less: Preferred Dividends [(1,000,000*20/100) + (300,000*50/100) = 350,000 shares * $20 per share = $7,000,000*7/100]	($490,000)
Earnings (Loss) available to common stockholders (a)	($398,750)
Total weighted average common shares at the end of the period (b)	1,300,000
Basic earnings (loss) per share (a/b)	($0.3)