Question

Net income was $240,000 for the year. Throughout the year the company had outstanding 12,000 shares of 6%, $50 par value preferred stock and 75,000 shares of common stock. Basic earnings per share of common stock for the year were:

Answer 1

Answer:

Basic earnings per share of common stock for the year were 272 cents

Explanation:

Basic earnings per share = Earnings Attributable to Shareholders of Common Stock/Weighted Average Number of Common Stock in Issue during the year

Calculation of Earnings Attributable to Shareholders of Common Stock :

Net income for the year                                                               $240,000

Preference Dividends on Preferred Stock (12,000× $50×6%)   ($36,000)

Earnings Attributable to Shareholders of Common Stock         $204,000

Therefore Basic earnings per share = $ 204,000/ 75,000 shares of common stock

                                                            = 272 cents

Answer 2

Answer: Earning per share of common stock for the year = $2.72

Explanation:

Giving the following ;

Net income for the year = $240,000

Number of shares(preferred stock) outstanding = 12,000

Par value(preferred stock) = $50

Number of shares(common stock) outstanding= 75,000

Basic earning per share of common stock is given by;

Earning per share = Net income - preferred dividend) ÷ weighted average of common shares outstanding during the period

Dividend on preferred stock = 12000 × $50 × 0.06 = $36,000

Earning per share = $(240,000 - 36,000) ÷ 75,000

Earning per share = $204,000 ÷ 75,000 = $2.72