On December 31, 2015, Dow Steel Corporation had 620,000 shares of common stock a
ID: 2472288 • Letter: O
Question
On December 31, 2015, Dow Steel Corporation had 620,000 shares of common stock and 32,000 shares of 10%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $420,000 and $71,000 to common and preferred shareholders, respectively, on December 15, 2016.
On February 28, 2016, Dow sold 64,000 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, 2016, was $2,200,000. The income tax rate is 40%.
1.) Compute Dow's earnings per share for the year ended December 31, 2016.
On December 31, 2015, Dow Steel Corporation had 620,000 shares of common stock and 32,000 shares of 10%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $420,000 and $71,000 to common and preferred shareholders, respectively, on December 15, 2016.
On February 28, 2016, Dow sold 64,000 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, 2016, was $2,200,000. The income tax rate is 40%.
1.) Compute Dow's earnings per share for the year ended December 31, 2016.
Explanation / Answer
Earnings per share indicate the income earned by each share of common stock.
Basic Earnings per share is computed by divided Net Income by weighted average number of shares outstanding during the period.
Basic EPS is calculated as under:
Dow's earnings per share for the year ended December 31, 2016 is calculated as under:
Particulars 2016 Basic EPS Net Income (a) 21,29,000 Outstanding shares (b) 6,71,333 Basic EPS (a/b) 3.2 Particulars 2016 Net Income (a) 22,00,000 Less: Preference dividend 71,000 net income for Common shareholders 21,29,000 Particulars 2016 Opening Common stock 620000 Sold stock 64,000*10/12 53333 Shares retired 4,000*6/12 2000 Outstanding shares 671333Related Questions
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