Rawdon Corporation’s net operating income in Year 2 was $52,429, net income befo

Question

Rawdon Corporation’s net operating income in Year 2 was $52,429, net income before taxes was $34,429, and the net income was $24,100. Total common stock was $360,000 at the end of both Year 2 and Year 1. The par value of common stock is $4 per share. The company’s total stockholders’ equity at the end of Year 2 amounted to $976,000 and at the end of Year 1 to $960,000. The company’s earnings per share for Year 2 is closest to:

Multiple Choice

$0.58 per share

$0.38 per share

$0.27 per share

$5.84 per share

Explanation / Answer

SOLUTION

The company’s earnings per share for Year 2 is closest to $0.27 per share.

Earnings per share = Net Income / Average number of common shares outstanding*

= $24,100 / 90,000 shares = $0.27 per share

*Number of common shares outstanding = Common stock / Par value

= $360,000 / $4 per share = 90,000 shares

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