Question

Financial statement data for the years ended December 31 for Dovetail Corporation follows:2016 2015Net income $448,750 $376,000 Preferred dividends $40,000 $40,000 Average number of common shares outstanding 75,000 shares 60,000 sharesa. Determine the earnings per share for 2016 and 2015. Round your answers to two decimal places.2016 _________$ per share2015 _________$ per shareb. Does the change in the earnings per share from 2015 to 2016 indicate a favorable or an unfavorable trend?

Answer 1

The earnings per share for 2016 are $5.45 per share while the earnings per share for 2015 were $5.60 per share.

The earnings per share has fallen in 2016 as compared to 2015, thus there is an unfavorable trend.

Step-by-step explanation:

Earning per share (EPS) is the amount of net income allocable to each share of common stock outstanding. It is a useful measure for investors as it tells them how much $ return a business in earning on every share of common stock. The earnings per share is calculated as follows,

Earnings per share = (Net Income - Preferred dividends) / Weighted average shares on common stock outstanding

The earnings per share for Dovetail is

2015 EPS = (376000 - 40000) / 60000 = $5.60 per share

2016 EPS = (448750 - 40000) 75000 = $5.45 per share