Question

Ecker Company reports $2,700,000 of net income and declares $388,020 of cash dividends on its preferred stock for the year. At year-end, the company had 678,000 weighted-average shares of common stock.

1. What amount of net income is available to common stockholders?

2. What is the company’s basic EPS?

Answer 1

1.

The net income available to common stockholders is $2,311,980

2.

The basic EPS is $3.41 per share.

Step-by-step explanation:

1.

The net income available to common stockholders is the amount of net income that is left after deducting the preferred dividends from the net income for the year. Thus, net income available to common stockholders is,

Net Income available to common stockholders = Net Income - Preferred stock dividends

Net Income available to common stockholders = 2700000 - 388020

Net Income available to common stockholders = $2,311,980

2.

The basic EPS or basic earnings per share is the amount of earning or net income that a company has earned on each of its common stock/share. The basic EPS is calculated as follows,

Basic EPS = Net Income available to common stockholders / Weighted average number of common shares outstanding

Basic EPS = 2311980 / 678000

Basic EPS = $3.41 per share

Answer 2

Consider the following explanation

Step-by-step explanation:

(1) - Net income is available to common stockholders for 2013

Net income is available to common stockholders = Reported Net Income – Preferred Dividend

= $2,700,000 - 388,020

= $ 2,311,980

(2) - Company’s Basic EPS for 2013

Basic Earnings Per Share [EPS] = Net income is available to common stockholders / weighted-average shares of common stock

= $ 2,311,980 / 678,000 Shares

= $3.41 per share