Question

Rothstein Corp. had the same capital structure in 2021 and 2022, consisting of the following: Preferred stock, $12 par, 5% cumulative, 20,000 shares issued and outstanding$240,000 Common stock, $6 par, 250,000 shares issued and outstanding 1,500,000 Rothstein reported net income of $600,000 for 2022. No preferred dividends were paid during 2021, but Rothstein paid $20,000 in preferred dividends in 2022. In its 2022 income statement what amount should Rothstein report as basic earnings per share?

Answer 1

2.37

Step-by-step explanation:

Earnings per share is a monetary value for every outstanding share. The EPS is reported in the income statement of the company. Rothstein Corp. has paid $20,000 of preference dividend in the year 2022. The annual preference dividend is $12 par * 20,000 shares * 5% cumulative = 12,000 per year.

The total preference dividend for year 2021 and 2022 is 24,000 out of which 20,000 is already paid.

To calculate EPS we subtract unpaid preference dividend from net income $600,000 - $4,000 = 596,000

EPS = Net income after preference shares dividend / outstanding number of shares

EPS = $596,000 / 250,000 shares = 2.37