Question

A company had the following stockholders' equity information available at year-end. - Issued 11,000 shares of $2.00 par value common stock for $12.00 per share. - Issued 5,000 shares of $50 par value 6% preferred stock for $70 per share. - Purchased 1,000 shares of previously issued common stock for $15.00 per share. - Reported net income of $200,000. - Declared and paid the preferred stock dividend. Calculate the earnings per share for the current year. Round your answer to two decimal places. $

Answer 1

$28.5

Step-by-step explanation:

Earnings per share is calculated for Equity shares.

And the treasury stock is not included.

Total equity shares in number = 11,000 - 1,000 (Treasury stock)

= 10,000 shares

Total earnings = $200,000

Further provided that dividend to preference shareholders is paid.

Dividend on preference capital is fixed, that is the rate multiply the par value, dividend is not paid on security premium amount.

Preference dividend = 5,000
`*` $50
`*` 6% = $15,000.

The information provided for share issue rates is of no importance of equity, whereas the relevant number provided is important.

Thus earnings after preference dividend = $200,000 - $15,000 = $285,000

Earnings per share = $285,000/10,000 = $28.5 per share.