Basic Earnings per Share—Simple Capital Structure
The following condensed financial statements for Tomac Corporation were prepared by the accounting department.
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Tomac Corporation |
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Income Statement |
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For the Year Ended December 31, 2008 |
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Sales |
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$12,000,000 |
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Cost of goods sold |
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10,000,000 |
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Gross profit on sales |
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$ 2,000,000 |
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Expenses: |
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Selling expense |
$500,000 |
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Administrative expense |
340,000 |
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Interest expense |
24,000 |
864,000 |
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Income from continuing operations before income taxes |
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$ 1,136,000 |
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Income taxes |
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446,000 |
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Income from continuing operations |
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$ 690,000 |
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Extraordinary loss, net of tax savings |
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(60,000) |
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Net income |
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$ 630,000 |
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Tomac Corporation |
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Balance Sheet |
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December 31, 2008 |
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Assets |
$5,300,000 |
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Liabilities: |
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Current liabilities |
$1,450,000 |
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6% bonds, due December 31, 2012 |
900,000 |
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Stockholders’ equity: |
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Common stock, $10 par, 200,000 shares authorized, issued and outstanding |
2,000,000 |
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Additional paid-in capital |
600,000 |
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Retained earnings |
350,000 |
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Total liabilities and stockholders’ equity |
$5,300,000 |
Instructions: Compute the basic EPS under each of the following independent assumptions (the company has a simple capital structure).
1. No change in the capital structure occurred in 2008.
2. On December 31, 2007, there were 120,000 shares outstanding. On May 1,2008,60,000 shares were sold at par, and on October 1, 2008, 20,000 shares were sold at par.
3. On December 31, 2007, there were 160,000 shares outstanding. On July 1, 2008, the company issued a 25% stock dividend.