2-2BP Sosa Diet Supplements had earnin... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 2-2BP (page 48)

Sosa Diet Supplements had earnings after taxes of $800,000 in 20X1 with 200,000 shares of stock outstanding. On January 1, 20X2, the firm issued 50,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 30 percent.
a. Compute earnings per share for the year 20X1.
b. Compute earnings per share for the year 20X2.

Short Answer

Expert verified

Earning per share of Sosa Diet Supplements for the year ending:

20X1: $4

20X2: $4.16

Step by step solution

Calculation of EPS for the year 20X1

$E P S = \frac{E a r n i n g a f t e r t a x}{N o . o f s h a r e s o u t s t a n d i n g} = \frac{$ 800, 000}{200, 000} = $ 4$

Calculation of EPS for the year 20X2

$E P S = \frac{E a r n i n g a f t e r t a x (1 + i n c r e a s e i n e a r n i n g)}{N o . o f s h a r e s o u t s t a n d i n g + N o . o f s h a r e s i s s u e d} = \frac{$ 800, 000 (1 + 30 %)}{200, 000 + 50, 000} = \frac{$ 1, 040, 000}{250, 000} = $ 4.16$

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	20X1	20X2
Sales	\(3,230,000	\)3,370,000
Cost of goods sold	2,130,000	2,850,000
Gross profits	\(1,100,000	\)520,000
Selling and administrative expenses	298,000	227,000
Operating profits	\(802,000	\)293,000
Interest expense	47,200	51,600
Income before taxes	\(754,800	\)241,400
Taxes (35%)	264,180	84,490
Income after tax	\(490,620	\)156,910

Indicate whether item is on Balance sheet (BS) or Income statement (IS)	If on Balance sheet, designate which category	Item
		Accounts receivable
		Retained earnings
		Income tax expense
		Accrued expense
		Cash
		Selling and administrative expenses
		Plant and equipment
		Operating expenses
		Marketable securities
		Interest expense
		Sales
		Notes payable (6 month)
		Bonds payable, maturity 2019
		Common stock
		Depreciation expense
		Inventories
		Capital in excess of par value
		Net income (earning after tax)
		Income tax payable

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Short Answer

Step by step solution

Calculation of EPS for the year 20X1

Calculation of EPS for the year 20X2

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