Question

Lancer, Inc. reports net income of 350,000. It declares and pays preferred dividends of 50,000 for the year. The weighted-average number of common shares outstanding during the year is 100,000 shares. Lancer computes earnings per share as follows. What is Lancer, Inc.'s earnings per share (EPS) based on the given information?

A) $2.50
B) $3.00
C) $3.50
D) $4.00

Answer 1

The earnings per share (EPS) for Lancer, Inc., after deducting preferred dividends from net income and dividing by the number of common shares, is $3.00 per share.

Step-by-step explanation:

To calculate Lancer, Inc.'s earnings per share (EPS), you deduct the preferred dividends from the net income before dividing by the weighted-average number of common shares outstanding. Given a net income of $350,000 and preferred dividends of $50,000, the amount available to common shareholders is $300,000 ($350,000 - $50,000). With 100,000 common shares outstanding, the EPS calculation is straightforward:

$300,000 ÷ 100,000 shares = $3.00 per share.

Therefore, the answer is B) $3.00.