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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 2 years ago
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