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15 August, 11:06

Net income was $240,000 for the year. Throughout the year the company had outstanding 12,000 shares of 6%, $50 par value preferred stock and 75,000 shares of common stock. Basic earnings per share of common stock for the year were:

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Answers (2)
  1. 15 August, 12:19
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    Basic earnings per share of common stock for the year were 272 cents

    Explanation:

    Basic earnings per share = Earnings Attributable to Shareholders of Common Stock/Weighted Average Number of Common Stock in Issue during the year

    Calculation of Earnings Attributable to Shareholders of Common Stock:

    Net income for the year $240,000

    Preference Dividends on Preferred Stock (12,000 * $50*6%) ($36,000)

    Earnings Attributable to Shareholders of Common Stock $204,000

    Therefore Basic earnings per share = $ 204,000 / 75,000 shares of common stock

    = 272 cents
  2. 15 August, 14:40
    0
    Answer: Earning per share of common stock for the year = $2.72

    Explanation:

    Giving the following;

    Net income for the year = $240,000

    Number of shares (preferred stock) outstanding = 12,000

    Par value (preferred stock) = $50

    Number of shares (common stock) outstanding = 75,000

    Basic earning per share of common stock is given by;

    Earning per share = Net income - preferred dividend) : weighted average of common shares outstanding during the period

    Dividend on preferred stock = 12000 * $50 * 0.06 = $36,000

    Earning per share = $ (240,000 - 36,000) : 75,000

    Earning per share = $204,000 : 75,000 = $2.72
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