Question

Sonny Corporation has a simple capital structure of 100,000 shares of $1 par common stock and 20,000 shares of 5 percent preferred stock, $50 par. Both classes of stock were outstanding for the entire year. During the year, the company reported net income of $550,000 and declared dividends of $75,000 and $50,000 on the common stock and the preferred stock, respectively. Sonny’s earnings per share for the year were

Answer 1

Answer:

$5 per share

Explanation:

The formula and computation of the earning per share are shown below:

= (Net income - preference dividend) ÷ (Outstanding Number of shares)

= ($550,000 - $50,000) ÷ (100,000 shares)

= ($500,000)  ÷ (100,000 shares)

= $5 per share

We do not consider the common stock dividend and the preference share outstanding because this is not relevant for the computation part.