Question

Hardaway Fixtures' balance sheet at December 31, 2020, included the following: Shares issued and outstanding: Common stock, $1 par $ 800,000 Nonconvertible preferred stock, $50 par 20,000 On July 21, 2021, Hardaway issued a 25% stock dividend on its common stock. On December 12, it paid $50,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2021, was $2,000,000. Required: Compute Hardaway's earnings per share for the year ended December 31, 2021. (Enter your answers in thousands. Do not round intermediate calculations.)

Answer 1

$1.95

Step-by-step explanation:

One key thing to note is that increase in shares due to to stock dividend is treated as if it has always being in place from the first day of business.

In other words,the increase is also considered while computing the company's earnings per share for the year.

Earnings per share=earnings attributable to common stock/weighted average number of shares

earnings attributable to common stock=net income -preferred dividends

net income is $2,000,000

preferred dividends is $50,000

earnings attributable to common stock =$2,000,000-$50,000=$1,950,000

weighted average number of common stock=800,000+stock dividend

=800,000+(800,000*25%)

=1,000,0000

eps=$1,950,000/1,000,000=$1.95