Question

Padowski Corporation's net income for the current year is $490,000. At year end, the corporation had outstanding 6,500 shares of 13%, $110 par value nonconvertible preferred stock and 18,000 shares of $10 par value common stock. No shares were issued or retired during the year. What is basic earnings per share? (Round your final answer to the nearest cent.)

A. $2.55

B. $3.90

C. $5.10

D. $4.76

Answer 1

To calculate basic earnings per share for Padowski Corporation, subtract the preferred dividends from the net income and divide by the number of common shares, obtaining an EPS of approximately $22.06.

Step-by-step explanation:

The question asks about calculating the basic earnings per share (EPS) for Padowski Corporation considering its net income and outstanding shares. To calculate EPS, you need to subtract the preferred dividends from the net income and then divide by the outstanding common shares.

To calculate the preferred dividends, multiply the number of preference shares by the par value and the dividend percentage. Given that Padowski Corporation has 6,500 shares of 13%, $110 par value preferred stock, the dividends on preferred stock are calculated as 6,500 shares * $110 * 13%, which equals $92,950. Subtracting this from the net income ($490,000 - $92,950), we get $397,050. Next, dividing this amount by the 18,000 outstanding common shares, we arrive at an EPS of approximately $22.06.