Question

Clair, Inc. reports net income of $700,000. It declares and pays dividends of $100,000 for the year, one-half of which relate to the preferred shares. The weighted-average number of common shares outstanding during the year is 200,000 shares, and the weighted-average number of preferred shares outstanding during the year is 10,000 shares. Earnings per share for Clair, Inc. is (round your answer to the nearest cent): (LO 4)

(a) $3.18.
(b) $3.25.
(c) $3.30.
(d) $2.95.

Answer 1

Option (b) is correct.

Step-by-step explanation:

Net income for common shares = Net income - Preferred dividend

= $700,000 - (100,000 ÷ 2)

= $650,000

weighted-average number of common shares outstanding = 200,000 shares

Earning per share:

= Net income for common shares ÷ weighted-average number of common shares

= $650,000 ÷ 200,000

= 3.25