Question

In 2020, Linz Corporation reported a discontinued operations loss of $1,200,000, net of tax. It declared and paid preferred stock dividends of $120,000 and common stock dividends of $360,000. During 2020, Linz had a weighted average of 500,000 common shares outstanding. As a result of the discontinued operations loss, net of tax, the earnings per share would decrease by

a. $1.44
b. $1.68
c. $2.16
d. $2.40

Answer 1

The decrease in earnings per share (EPS) as a result of the discontinued operations loss is $2.40. hence, option d. is the correct answer.

Step-by-step explanation:

To calculate the decrease in earnings per share (EPS) as a result of the discontinued operations loss, we need to divide the loss by the average number of common shares outstanding. The net loss from discontinued operations is $1,200,000. Linz Corporation had a weighted average of 500,000 common shares outstanding. Therefore, the decrease in EPS would be:

($1,200,000 / 500,000) = $2.40

This computation indicates that the decrease in earnings per share due to the loss incurred from discontinued operations is $2.40. In essence, this figure reflects the reduction in earnings available to each common share outstanding as a consequence of the specific loss associated with discontinued operations. It serves as a metric to gauge the impact of such events on the company's profitability per share, providing valuable insight for investors and stakeholders evaluating the financial performance of Linz Corporation.