On December 31, 2020, Dow Steel Corporation had 670,000 shares of common stock and 37,000 shares of 7%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $470,000 and $76,000 to common and preferred shareholders, respectively, on December 15, 2021.

On February 28, 2021, Dow sold 51,000 common shares. In keeping with its long-term share repurchase plan, 4,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2021, was $2,450,000. The income tax rate is 25%.

Required:

Compute Dow's earnings per share for the year ended December 31, 2021. (Do not round intermediate calculations. Enter your answers in thousands. Round "Earnings per share" answer to 2 decimal places.)

Question

Business

Alfonso Gallegos

14 January, 06:02

On December 31, 2020, Dow Steel Corporation had 670,000 shares of common stock and 37,000 shares of 7%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $470,000 and $76,000 to common and preferred shareholders, respectively, on December 15, 2021.

On February 28, 2021, Dow sold 51,000 common shares. In keeping with its long-term share repurchase plan, 4,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2021, was $2,450,000. The income tax rate is 25%.

Required:

Compute Dow's earnings per share for the year ended December 31, 2021. (Do not round intermediate calculations. Enter your answers in thousands. Round "Earnings per share" answer to 2 decimal places.)

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Answers (1)

Know the Answer?

Francis Mcmahon · Answer 1

Earnings per share is $3.21

Explanation:

The calculation of weighted average number of shares to be used in EPS computation is provided thus:

Initial shares 670,000*1.04*12/12 696,800.00

share issued in February 51,000*1.04*10/12 44,200.00

shares repurchased 4000*6/12 (2,000.00)

Weighted average number of shares 739,000.00

earnings attributable to common stock=net income-preferred shares dividends

net income is $2,450,000

preferred shares dividends is $76,000

earnings attributable to common stock=$2,450,000-$76,000

=$2,374,000.00

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

Earnings per share=$2,374,000.00/739,000.00

=$3.21