Question

Newcastle enterprises had net income for 2018 of $103,000. newcastle had 39,000 shares of common stock outstanding at the beginning of the year and 43,000 shares of common stock outstanding at the end of the year. there were 6000 shares of preferred stock outstanding all year. during 2018, newcastle declared and paid preferred dividends of $29,000. what is newcastle's earnings per share?

a. $1.72
b. $2.51
c. $2.40
d. $1.80

Answer 1

The earnings per share (EPS) for Newcastle Enterprises is calculated by subtracting the preferred dividends from net income and dividing by the weighted average number of common shares outstanding, resulting in an EPS of $1.80. Therefore, the correct option is D.

Step-by-step explanation:

To calculate Newcastle's earnings per share (EPS), one must subtract the preferred dividends from the net income and then divide by the weighted average of common shares outstanding. Since Newcastle had 39,000 shares at the beginning and 43,000 at the end of the year, the average is calculated as (39,000 shares for half of the year + 43,000 shares for the other half) / 2, so the average common shares outstanding would be 41,000 shares. After adjusting for $29,000 preferred dividends, the earnings available to common shareholders would be $103,000 - $29,000 = $74,000. Therefore, EPS is $74,000 / 41,000 shares = $1.80.