Question

Determine earnings per share for Sixer Company given the following:

Net Sales Income before Income Taxes Gross Profit Income Tax Rate Preferred Stock Common Stock $885,000 $300,000 $500,000 3596 10,000 shares of 3% cumulative, $60 par 125,000 weighted shares of $5 par
A) $2.40
B) $0.70
C) $2.26
D) $1.42

Answer 1

Answer: D) $1.42

Step-by-step explanation:

Earnings per share is calculated as the amount available to common shareholders divided by the number of common shares.

Income available to shareholders = After tax income - Preferred dividends

Income before taxes = $300,000

After tax income = 300,000 * ( 1 - 35%)

= $195,000

Preferred dividend = 10,000 * 3% * 60

= $18,000

Income available to shareholders = 195,000 - 18,000

= $177,000

Earnings per share = Income available to shareholders / Common shares

= 177,000/125,000

= 1.416

= $1.42