Question

At December 31, 2020 Sunland Company had 200000 shares of common stock and 10600 shares of 7%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2020 or 2021. On February 10, 2022, prior to the issuance of its financial statements for the year ended December 31, 2021, Sunland declared a 100% stock dividend on its common stock. Net income for 2021 was $960000. In its 2021 financial statements, Sunland’s 2021 earnings per common share should be:___________$4.47.$4.20.$2.21.$1.29.

Answer 1

$2.21

Explanation:

For the computation of earnings per common share first we need to find out the preferred dividend and shares outstanding which is shown below:-

Preferred dividend = Common stock × 100 × Given percentage

= 10,600 × 100 × 7%

= 74,200

Share outstanding = Shares × 2

= 200,000 × 2

= 4,000,000

Earning per share = (Net income - Preferred dividend) ÷ Share outstanding

= ($960,000 - 74,200) ÷ 400,000

= $2.21

Hence, we applied the above formulas