The balance sheets at the end of each of the first two years of operations indic

Question

The balance sheets at the end of each of the first two years of operations indicate the following Total current assets Total investments Total property, plant, and equipment Total current liabilities Total long-term liabilities Preferred 9% stock, $100 par Common stock, $10 par Paid-in capital in excess of par Retained earnings Year 2 $600,000 60,000 900,000 150,000 350,000 100,000 600,000 60,000 325,000 Year 1 $560,000 40,000 700,000 80,000 250,000 100,000 600,000 60,000 210,000 n stock If net income is $125,000 and preferred dividends are $9,000 for Year 2, what is the earnings per share on common stock for Year 2? (Round to two decimal places.) O a. $2.08 b. $0.19 C. $1.75 O d. $1.93

Explanation / Answer

Solution:

Net Income = $125,000

Earnings available to the Common stockholders = Net income - Preferred Dividend = $125000 - $9000 = $116,000

Outstanding Common shares = $600,000 / $10 = 60,000

Earnings per share = Earnings available to the Common stockholders / Outstanding Common shares

= $116000 / 60000 = $1.93

Hence Option "d" is correct.

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