Question

At December 31, 2020 Marigold Corp. had 305000 shares of common stock and 9600 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2020 or 2021. On January 30, 2022, prior to the issuance of its financial statements for the year ended December 31, 2021, Marigold declared a 100% stock dividend on its common stock. Net income for 2021 was $1135000. In its 2021 financial statements, Marigold's 2021 earnings per common share should be

Answer 1

Answer:

Marigold's 2021 earnings per common share should be $1.77

Explanation:

Given:

Net income for 2021: $1,135,000

Num. of common stck shares: 305,000

Cumulative preferred stock outstanding: 9600 shares of 6%, $100 par value.

The dividend to be accrued on preference shares=

9,600 * $100 * 6% = $57,600

Share outstanding will be:

305,000 * 2 = 610,000

Earnings available to common share-holders =

(Net income-Preferred dividend) =

$1,135,000 - $57,600 = $1,077,400

Earnings per share is calculated as:

$1,077,400 / 610,000 = $1.77

Therefore, Marigold's 2021 earnings per common share should be $1.77

Answer 2

Answer:

Marigold Corp.

2021 Earnings per common share:

Common Stock:

Dec 31, 2020 Balance = 305,000 shares

Jan 30, 2022 Stock dividend = 305,000 shares

Balance on Jan 30 = 610,000 shares

Net Income for 2021 = $1,135,000

6% Cumulative preferred dividend for 2020 & 2021 = $115,200 ($57,600 x2)

2021 Earnings per share = ($1,135,000 - $115,200)/305,000 = $3.34

Explanation:

Earnings per share is the net income dividend by the number of outstanding stock.

As at December 31, 2021, the common stock outstanding equals 305,000 shares.

The preferred stock is cumulative.  This means that whether dividend is declared or not in a year, it continues to be accumulated year on year until when the company is able to pay.

Since 2020 dividend for preferred stock was not declared, in 2021 when the common stock dividend was declared, the previous year's and the present would be accumulated and deducted from earnings to arrive at earnings for common stockholders.