Washington Enterprises had net income for 2016 of $ 108 comma 000 $108,000. Wash

Question

Washington Enterprises had net income for 2016 of $ 108 comma 000 $108,000. Washington had 37 comma 000 37,000 shares of common stock outstanding at the beginning of the year and 48 comma 000 48,000 shares of common stock outstanding at the end of the year. There were 10 comma 000 10,000 shares of preferred stock outstanding all year. During 2016, Washington declared and paid preferred dividends of $ 25 comma 000 $25,000. What is Washington's earnings per share? (Round the answer to two decimal place

Explanation / Answer

Earnings per share= Net income/ Weighted average no.of shares

Net income= 108,000$

Since exact date of movement of shares are not given, we can take the closing no. of shares as weighted average no of shares, i.e 48,000

So Earnings per share= 108,000/48000

= 2.25$ per share

If the question would have stated the date of acquisition of new shares, we would have calculated weighted average for the same

Diluted earnings per share= ( Net income+ Preference dividend)/(Weighted average no. of equity shares+Convertible preference shares)

Here we are assuming that the preference shares are going to be converted in equity shares in future

Diluted earnings per share= ( 108,000$+25,000$)/($48000+$10000)

= 2.29$ per share

Here the diluted earnings per share is more than the actual earnings per share. Hence, it is abti dilutive. In that case, one should not disclose the Diluted earnings per share.

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