Question

Cox Corporation had 1,200,000 shares of common stock outstanding on January 1 and December 31, year 2. In connection with the acquisition of a subsidiary company in June year 1, Cox is required to issue 50,000 additional shares of its common stock on July 1, year 3, to the former owners of the subsidiary. Cox paid $200,000 in preferred stock dividends in year 2, and reported net income of $3,400,000 for the year. Cox's diluted earnings per share for year 2 should be___________.

Answer 1

$2.56 per share

Step-by-step explanation:

The formula to compute the diluted earning per share is shown below:

= (Net income reported - preferred stock dividend) ÷ (Outstanding number of shares + additional shares issued)

= ($3,400,000 - $200,000) ÷ (1,200,000 + 50,000)

= ($3,200,000) ÷ (1,200,000 shares)

= $2.56 per share

We simply divided the net income after deducting the preferred stock dividend and then divided it by the total number of shares