Question

At December 31, 2017, Blue Spruce Corporation had the following shares outstanding:

7% cumulative preferred shares, 107,100 shares outstanding		$10,710,000
Common shares, 4,190,000 shares outstanding		20,950,000

During 2017, the corporation’s only share transaction was the issuance of 370,000 common shares on April 1. During 2017, the following also occurred:

Income from continuing operations before tax		$22,800,000
Discontinued operations (loss before tax)		3,401,000
Preferred dividends declared		749,700
Common dividends declared		2,130,000
Effective tax rate		40%

Calculate earnings per share information as it should appear in the financial statements of Blue Spruce Corporation for the year ended December 31, 2017. (Round per share answer to 2 decimal places, e.g. 52.75.)

		Earnings Per Share
Income from Continuing Operations		$
Discontinued Operations
Income from Continuing Operations		$

Answer 1

In this question we are required to calculate EPS from continuing & discontinued operations, and income from continuing operations.

EPS = Earning attributable to Common Stock ÷ Weighted average number of Common Stock outstanding during the year

In this question, we have pre-tax income from continuing operations and pre-tax loss from discontinued operations.

To arrive at "Earning attributable to Common Stock", we have to compute post tax Earning and deduct preference dividend. Dividend declared on common stock is not relevant in such computation.

Lets solve the problem:

A) computation of EPS from Continuing operations and discontinued operations:

Particular	Working	Amount ($)
Income from continuing operations	Given in Q.	22,800,000
Less: loss from discontinued operations	Given in Q.	3,401,000
Total Pre-tax Earning		19,399,000
Less: Tax @ 40%	19,399,000×0.40	7,759,600
Post Tax Earning		11,639,400
Less: preferred dividend	given	749,700
Earnings attributable to Common Stock		10,889,700
(÷) No. Of Common Stock outstanding		4,190,000
EPS from Continuing operations and discontinued operations		2.59897 or Rounded off = 2.60

B) EPS from Continuing operations

Particular	Working	Amount ($)
Income from continuing operations	Given	22,800,000
Less: Tax@40%		9,120,00
Post Tax Earning		13,680,000
Less: Preferred dividend		749,700
Earnings attributable to Common Stock		12,930,300
(÷) No. of Common Stock outstanding		4,190,000
EPS from Continuing operations		3.08599 Or R.O. 3.09