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    EPS: Simple Capital Structure

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    On January 1, 2010, Bailey Industries had stock outstanding as follows.

    6% Cumulative preferred stock $100 par value issued and outstanding 10,000 shares $1,000,000
    Common stock, $10 par value, issued and outstanding 200,000 shares 2,000,000

    To acquire the net assets of three smaller companies, Bailey authorized the issuance of an additional 170,000 common shares. The acquisitions took place as follows.

    Date of Acquisition
    Shares Issued

    Company A April 1, 2010 60,000
    Company B July 1, 2010 80,000
    Company C October 1, 2010 30,000

    On May 14, 2010, Bailey realized a $90,000 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000.
    On December 31, 2010, Bailey recorded net income of $300,000 before tax and exclusive of the gain.

    Assuming a 40% tax rate, compute the earnings per share data that should appear on the financial statements of Bailey Industries as of December 31, 2010. Assume that the expropriation is extraordinary. (Round answer to 2 decimal places, e.g. 0.25.)

    $.59

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    Solution Preview

    Net income 300,000
    Income taxes 120,000 (@ .40)
    Income = 180,000

    Extraordinary gain 54,000 (because it's before taxes, which would be 36,000 since it's .40).
    Net income = 180000 + 54000 = ...

    Solution Summary

    On January 1, 2010, Bailey Industries had stock outstanding as follows.

    6% Cumulative preferred stock $100 par value issued and outstanding 10,000 shares $1,000,000
    Common stock, $10 par value, issued and outstanding 200,000 shares 2,000,000

    To acquire the net assets of three smaller companies, Bailey authorized the issuance of an additional 170,000 common shares. The acquisitions took place as follows.

    Date of Acquisition
    Shares Issued

    Company A April 1, 2010 60,000
    Company B July 1, 2010 80,000
    Company C October 1, 2010 30,000

    On May 14, 2010, Bailey realized a $90,000 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000.
    On December 31, 2010, Bailey recorded net income of $300,000 before tax and exclusive of the gain.

    Assuming a 40% tax rate, compute the earnings per share data that should appear on the financial statements of Bailey Industries as of December 31, 2010. Assume that the expropriation is extraordinary. (Round answer to 2 decimal places, e.g. 0.25.)

    $2.19