Question

During the current year, Comma Co. had outstanding: 25,000 shares of common stock; 8,000 shares of $20 par, 10% cumulative preferred stock; and 3,000 bonds that are $1,000 par and 9% convertible.

Answer 1

Answer:

B) $7.36

Explanation:

The preferred stocks' dividends =  8,000 x $20 x 10% = $16,000

To calculate earnings per share (EPS), we subtract the preferred stocks dividends from the net income = $200,000 - $16,000 = $184,000

Now we divide by the total number of common stocks = $184,000 / 25,000 shares = $7.36

*Convertible bonds are not included in this calculation, they should be included only after they are converted into stock.