Question

On December 31, 2020, Dow Steel Corporation had 610,000 shares of common stock and 31,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $410,000 and $70,000 to common and preferred shareholders, respectively, on December 15, 2021. On February 28, 2021, Dow sold 63,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2021, was $2,150,000. The income tax rate is 25%.

Required:
Compute Dow's earnings per share for the year ended December 31, 2021.

Answer 1

$3.02 per share

Step-by-step explanation:

The computation of the earning per share is shown below:

we know that

Earnings per share = (Net income - preferred dividend) ÷ Weighted average outstanding common shares

= ($2,150,000 - $70,000) ÷ 688,000 shares

= $3.02 per share

Date Particulars No. of shares

01/01-31/12 610000 × 12 ÷ 12 (610000 × 1.04) $634,400

28/02-31/12 63000 × 10 ÷ 12 (52500 × 1.04) $54,600

01/07-31/12 (2000) × 6 ÷ 12 -$1,000

Weighted average outstanding common shares 688,000