Question

Tanner corporation had net income of $250,000 and paid dividends to common stockholders $50,000 in the current year. The weighted average number of shares outstanding was 50,000. Tanner corporation's common stock is selling for $50 per share on the New York Stock Exchange. What is the earnings per share (EPS) for Tanner corporation?

1) $2
2) $5
3) $10
4) $25

Answer 1

The earnings per share (EPS) for Tanner Corporation is calculated by dividing the net income available to common stockholders ($200,000) after paying dividends, by the weighted average number of shares outstanding (50,000). The result is $4 per share.

Step-by-step explanation:

The question asks us to calculate the earnings per share (EPS) for Tanner Corporation. EPS is determined by dividing the net income available to common stockholders by the weighted average number of shares outstanding. Here, the net income is $250,000 and after paying out dividends of $50,000 to common stockholders, the earnings available for common stockholders is $200,000 (since dividend payments are typically deducted from net income to calculate EPS). With 50,000 shares outstanding, the EPS for Tanner Corporation can be calculated as follows:

Earnings Per Share (EPS) = Net Income Available to Common Stockholders / Weighted Average Number of Shares Outstanding

Earnings Per Share (EPS) = $200,000 / 50,000 shares

Earnings Per Share (EPS) = $4 per share

Therefore, the EPS for Tanner Corporation is $4 per share. Among the given options, none directly match this correct value. If a rounding error must be accounted for, the closest available option is $5, but this is not precise.