Thrifty Co. reported net income of $465,000 for its fiscal year ended January 31

Question

Thrifty Co. reported net income of $465,000 for its fiscal year ended January 31, 2011. At the beginning of that fiscal year, 200,000 shares of common stock were outstanding. On October 31, 2010, an additional 60,000 shares were issued. No other changes in common shares outstanding occurred during the year. Also during the year the company paid the annual dividend on the 25,000 shares of 7%, $40 par value preferred stock that were also outstanding the entire year.


Required:
(a)
Calculate basic earnings per share of common stock for the year ended January 31, 2011. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)


Earnings per share $

Explanation / Answer

Whenever dividend is declared, first Pref sharesholders are paid & then Common shareholders.In 2010, Pref Dividend = 7%*$40 = $2.80 per Pref share*25000 Pref shares = $70,000 was paid. The total book value of the preferred stock is the book value per share times the total number of shares outstanding. Here book value per share of preferred is $40 and there are 25,000 shares of the preferred stock outstanding, then the total book value of the preferred stock is $40*25000= $1,000,000 Let's compute the total book value of preferred stock by using the following information: Stockholders' Equity Paid-in Capital 7% Prefstock, $40 par,25000 shares issued $1,000,000 Comm stock, $1par,(200000+60000) shares outstanding $260,000 Number of shares of common stock outstanding 260,000 shares basic earnings per share of common stock =(Net Income - Pred Div paid)/No Of common stock outstanding = (465000-70000)/260000 = $1.52 So basic earnings per share of common stock is $1.52...............Ans

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