On December 31, 2017, Dow Steel Corporation had 690,000 shares of common stock a

Question

On December 31, 2017, Dow Steel Corporation had 690,000 shares of common stock and 39,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $490,000 and $78,000 to common and preferred shareholders, respectively, on December 15, 2018. On February 28, 2018, Dow sold 56,000 common shares. In keeping with its long-term share repurchase plan, 5,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2018, was $2,550,000. The income tax rate is 40%. Required: Compute Dow's earnings per share for the year ended December 31, 2018

Explanation / Answer

Net Income = $ 2550000

Less: Preferred Dividend = $ 78000

Profit availabe = $ 2472000

Calculation of number of shares:

Basic EPS =  $ 2472000 / 771000 = $ 3.20 per share

Shares Number Duration Net Shares Stock Dividend Total Shares Opening 690000 12 690000 34500 724500 New Shares 56000 10 46667 2333 49000 Retired 5000 6 2500 -2500 771000

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