Question

Belltower, Inc. has net income for 2016 of $370,000. At January 1, 2016, the company had outstanding 54,000 shares of $50 par value common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock. On September 1, 2016, an additional 18,000 shares of common stock were issued.
What is the earnings per share for 2016 (to the nearest cent)?
A. $5.17
B. $4.31
C. $4.44
D. $6.17

Answer 1

Answer:

A. $5.17

Explanation:

Use the following formula to calculate the Earnings per share

Earnings per share = ( Net Income - preferred Dividend ) / Weighted average numbers of outstanding shares

Where

Net Income = $370,000

Preferred Dividend = 10,000 x $100 x 6% = $60,000

Weighted average numbers of outstanding shares = 54,000 shares + ( 18,000 shares x 4/12 ) = 54,000 shares + 6,000 shares = 60,000 shares

Placing values in the formula

Earnings per share = ( $370,000 - $60,000 ) / 60,000 shares

Earnings per share = $5.17 per share