Question
In: Accounting
On December 31, 2017, Dow Steel Corporation had 790,000 shares of common stock and 49,000 shares...
On December 31, 2017, Dow Steel Corporation had 790,000 shares
of common stock and 49,000 shares of 7%, noncumulative,
nonconvertible preferred stock issued and outstanding. Dow issued a
4% common stock dividend on May 15 and paid cash dividends of
$590,000 and $88,000 to common and preferred shareholders,
respectively, on December 15, 2018.
On February 28, 2018, Dow sold 72,000 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 $3,050,000. The income tax rate is 40%.
Required:
Compute Dow's earnings per share for the year ended December 31,
2018
Solutions
Expert Solution
| Net Income = $ 30,50,000 |
| Less: Preferred Dividend = $ 88,000 |
| Profit availabe = $ 29,62,000 |
| Calculation of number of shares: | |||||
| Shares | Number | Duration | Net Shares | Stock Dividend 4% | Total Shares |
| Opening | 7,90,000 | 12 | 7,90,000 | 31,600 | 8,21,600 |
| New Shares | 72,000 | 10 | 60,000 | 3,000 | 63,000 |
| Retired | 6,000 | 6 | 3,000 | -3,000 | |
| 8,81,600 | |||||
| Basic EPS = $ 29,62,000 / 8,81,600 = $ 3.36 per share | |||||
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