Question

Hardaway Fixtures' balance sheet at December 31, 2017, included the following: Shares issued and outstanding: Common stock, $1 par $ 820,000 Nonconvertible preferred stock, $50 par 10,000 On July 21, 2018, Hardaway issued a 25% stock dividend on its common stock. On December 12 it paid $10,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2018, was $2,200,000. Required: Compute Hardaway's earnings per share for the year ended December 31, 2018. (Enter your answers in thousands.)

Answer 1

Answer:

The earning per share for the year ended December 31,2018 are $2.37

Explanation:

earnings per share:

usually:

net income / shares outstanding

but, when there are preferred stock:

(net income - preferred stock dividends)   /    average shares outstanding

(2,200,000 - 10,000) / 922,500 shares (A) = 2,37398374 = 2.37

The cash dividends to common stock do not impact the earnings per share, only the preferred stock does.

(A)

The stock dividends increases the share outstanding:

820,000 x 25% = 205,000 new shares

total shares 1,025,000 shares

The average stock will be:

820,000 at the beginning of the period

1,025,000 at the end of the period

average: (beginning + ending ) / 2

(820,000 + 1,025,000) / 2 = 1,845,000 / 2 = 922,500 shares