The net income of Foster Furniture, Inc., amounted to $1,400,000 for the current

ID: 2342663 • Letter: T

Question

The net income of Foster Furniture, Inc., amounted to $1,400,000 for the current year. a. Compute the amount of earnings per share assuming that the shares of capital stock outstanding throughout the year consisted of: 1. 400,000 shares of $1 par value common stock and no preferred stock 2. 100,000 shares of 8 percent, $100 par value preferred stock and 300,000 shares of $5 par value common stock. b. Is the earnings per share figure computed in part a(2) considered to be basic or diluted? Complete this question by entering your answers in the tabs below Req A1 Req A2 Req B Compute the amount of earnings per share assuming that the shares of capital stock outstanding throughout the year consisted of 400,000 shares of $1 par value common stock and no preferred stock. (Round your answer to 2 decimal places.) Earnings per share Req A1 Req A2 >

Explanation / Answer

Answer:

(a)-1

Earning per share

=net income / Number of shares Outstanding

=1,400,000 /400,000

=$3.5

Earnings per share =$3.5

(a)-2

Net income

1,400,000

less:

Preferred dividend
(100,000x$100x 8%)

800000

Earning available to equity share holder (a)

600,000

Divided by number of equity shares (b)

300,000

Earnings per share (a/b)

Earnings per share =$2

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(b)

Earnings Per share calculated in a-2 is basic earnings per share and not delutes earning per share .

Explanation:

Reason is that preferred stock are not converted in to the common stock . Diluted EPS are calculated where outstanding securities are conversable in to the common share