Question

Elite Trailer Parks has an operating profit of $293,000. Interest expense for the year was $38,800; preferred dividends paid were $31,500; and common dividends paid were $36,900. The tax was $65,500. The firm has 20,200 shares of common stock outstanding.
Required:
a. Calculate the earnings per share and the common dividends per share for Elite Trailer Parks.
b. What was the increase in retained earnings for the year?

Answer 1

Answer:

a.Earnings per share $7.78

Dividends per share $1.83

b. $120,300

Explanation:

a. Calculation to determine the earnings per share and the common dividends per share for Elite Trailer Parks.

First step is to calculate the Increase in retained earnings

Operating profit $293,000

Interest expense ($38,800)

=Earnings before taxes $254,200

Less Taxes ($65,500)

Earnings after taxes = $188,700

Preferred dividends ($31,500)

Available to common stockholders $157,200

Common dividends ($36,900)

Increase in retained earnings $120,300

($157,200-$36,900)

Now let determine Earnings per share and Dividends per share using this formula

Earnings per share = Available to common stockholders/ Number of common shares outstanding

Let plug in the formula

Earnings per share = $157,200/20,200

Earnings per share= $7.78

Dividends per share = Common dividends/ Number of shares outstanding

Let plug in the formula

Dividends per share=$36,900/20,200

Dividends per share= $1.83

Therefore the earnings per share and the common dividends per share for Elite Trailer Parks is:

Earnings per share $7.78

Dividends per share $1.83

B. Based on the information above calculation in (a) the increase in retained earnings for the year is $120,300