On December 31, 2017, Dow Steel Corporation had 700,000 shares of common stock and 40,000 shares...

On December 31, 2017, Dow Steel Corporation had 700,000 shares of common stock and 40,000 shares of 10%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $500,000 and $79,000 to common and preferred shareholders, respectively, on December 15, 2018. On February 28, 2018, Dow sold 64,000 common shares. In keeping with its long-term share repurchase plan, 6,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2018, was $2,600,000. The income tax rate is 40%. Required: Compute Dow's earnings per share for the year ended December 31, 2018.

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Expert Solution

COMPUTATION OF DOW'S EARNINGS PER SHARE FOR THE YEAR ENDED 31ST DECEMBER 2018

				Amount in $
Net income for the year ended 31st December 2018				2600000
Less : Income tax @ 40 %				1040000
Net income after tax				1560000
Less: Cash dividends paid to Common stock and			500000
	preference shares		79000	579000

Net earnings available for common stock and preference
		shareholders		981000



Total no of shares as on 31 stDecember 2018
				In shares
Common stock
	As on December 31st 2017			700000
	Add: Common shares sold on February 28, 2018			64000
	Total Common shares			764000


10% Non cumulative non convertible peferred stock
	As on December 31st 2017			40000
	Less: Shares retired			6000
	Total preferred shares			34000

Therefore total shares = common stock + preferred shares				798000


EARNINGS PER SHARE = NET EARNINGS AVAILABLE / TOTAL SHARES AS ON THE DAT
therefore, $981000 / 798000 shares =$ 1.23 per share

ekkarill92 answered 1 year ago

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