Question

At December 31, 2017 Crane Company had 290000 shares of common stock and 9000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2017 or 2018. On January 30, 2019, prior to the issuance of its financial statements for the year ended December 31, 2018, Crane declared a 100% stock dividend on its common stock. Net income for 2018 was $1130000. In its 2018 financial statements, Crane's 2018 earnings per common share should be (rounded to the nearest penny)

Answer 1

Answer:

$1.87 per share

Explanation:

The formula to compute the earning per share is shown below:

Earning per share = (Net income - preference dividend) ÷ (Number of shares)

where,

Preference dividend would be

= Number of shares × par value per share × dividend rate

= 9,000 shares × $100 × 5%

= $45,000

And, the number of shares would be

= 290,000 + 290,000

= 580,000 shares

we take 290,000 shares again because of 100% stock dividend declared

And, the net income is $1,130,000

Now put these values to the above formula

So, the value would be equal to

= ($1,130,000 - $45,000) ÷ (580,000 shares)

= $1.87 per share