Question

At December 31, 2010 Rice Company had 300,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2010 or 2011. On January 30, 2012, prior to the issuance of its financial statements for the year ended December 31, 2011, Rice declared a 100% stock dividend on its common stock. Net income for 2011 was $950,000. In its 2011 financial statements, Rice's 2011 earnings per common share should be

a. $1.50.
b. $1.58.
c. $3.00.
d. $3.17.

Answer 1

To calculate Rice Company's earnings per common share for 2011, we need to consider the stock dividend declared in January 2012. A stock dividend is the distribution of additional shares to existing shareholders. In this case, a 100% stock dividend means that the number of common shares will double. The earnings per common share for 2011 would be $1.58.

Step-by-step explanation:

To calculate Rice Company's earnings per common share for 2011, we need to consider the stock dividend declared in January 2012. A stock dividend is the distribution of additional shares to existing shareholders. In this case, a 100% stock dividend means that the number of common shares will double.

First, we calculate the new number of common shares after the stock dividend:

1. 300,000 shares (existing) + 300,000 shares (stock dividend) = 600,000 shares

We then calculate the earnings per common share:

1. Divide the net income ($950,000) by the new number of common shares (600,000): $950,000 / 600,000 = $1.5833 per common share

Rounding to the nearest cent, the earnings per common share for 2011 would be $1.58.