Question

1. Frantic Fast Foods had earnings after taxes of $1,200,000 in 20X1 with 322,000 shares outstanding. On January 1, 20X2, the firm issued 30,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 24 percent.

a. Compute earnings per share for the year 20X1. (Round your answer to 2 decimal places.)
Earnings per share _______

b. Compute earnings per share for the year 20X2. (Round your answer to 2 decimal places.)

Earnings per share __________

Answer 1

1 a.

Earnings per share for the year 20X1= Earning after taxes in 20X1/ Number of shares outstaning in 20X1

= $1,200,000/ 322,000

= $3.73 per share

1 b.

Earnings after taxes in 20X2= $1,200,000 * 1.24

= $1,488,000

Shares oustanding in 20X2= Shares outstanding in 20X1 + Shares issued on January 1, 20X2

= 322,000 + 30,000

= 3,52,000 shares

Earnings per share for the year 20X2= Earning after taxes in 20X2/ Number of Shares Outstanding in 20X2

= $1,488,000/ 352,000

= $ 4.23 per share