Question

At Decemember 31, 20X1 Ratt Corporation had 40,000 shares of common stock and 10,000 shares of preferred stock issued and outstanding. Ratt's net income for the year ended December 31, 20X1 was $240,000. During 20X1 Ratt declared and paid $16,000 cash dividends on the preferred stock and $100,000 on the common stock. There were no common stock or preferred stock transactions during the year. The earnings per common share for the year ended December 31, 20X1 should be

Answer 1

The earnings per common share for Ratt Corporation for the year ended December 31, 20X1, after deducting preferred dividends, is $5.60.

Step-by-step explanation:

To calculate the earnings per common share (EPS) for Ratt Corporation for the year ended December 31, 20X1, we start by subtracting the dividends on preferred stock from the net income to determine the earnings available to common shareholders. Ratt's net income for the year was $240,000, and it paid $16,000 in dividends on preferred stock. Therefore, the earnings available to common shareholders are $240,000 - $16,000 = $224,000.

Next, we calculate the EPS by dividing the earnings available to common shareholders by the number of common shares outstanding. Ratt Corporation had 40,000 common shares issued and outstanding. Thus, the EPS for Ratt Corporation is $224,000 / 40,000 shares = $5.60 per common share.