Question

At the end of 2020, the records of Block Corporation reflected the following.

Common stock, $5 par, authorized 500,000 shares
Outstanding January 1, 2020, 400,000 shares		$2,000,000
Sold and issued April 1, 2020, 2,000 shares		10,000
Issued 5% stock dividend, September 30, 2020; 20,100 shares		100,500
Preferred stock, 6%, $10 par, nonconvertible, noncumulative, authorized 50,000 shares
Outstanding during year, 20,000 shares		200,000
Paid-in capital in excess of par, common stock		180,000
Paid-in capital in excess of par, preferred stock		100,000
Retained earnings (after the effects of current preferred dividends declared during 2020)		640,000
Bonds payable, 6.5%, nonconvertible, issued at par January 1, 2020		1,000,000
Net income		164,000
Income tax rate, 25%

a. What EPS presentation is required—basic, diluted, or both?

Answer: Basic EPS/Diluted EPSBasic and Diluted EPS

b. Compute the required EPS amount(s).

• Note: Round earnings per share amount to two decimal places.

	Net Income Available to Common Stockholders	Weighted Avg. Common Shares Outstanding	Per Share
Answer: Basic EPS/Diluted EPSBasic and Diluted EPS	Answer	Answer	Answer

c. Compute the required EPS amount(s), assuming that the preferred stock is cumulative.

• Note: Round earnings per share amount to two decimal places.

	Net Income Available to Common Stockholders	Weighted Avg. Common Shares Outstanding	Per Share
Answer: Basic EPS/Diluted EPSBasic and Diluted EPS	Answer	Answer	Answer

Answer 1

a) Basic EPS Presentation is required as the Prefrence Shares and Bonus are Non Convertible, therefore no Diluted EPS will be Calculated

b)

1) Net Income available to Common Shareholders

Net earnings + Retained earnings - Tax = 164000+640000-201000(i.e. 164000+64000*25%) = 603000

(Prefrence dividend will not be deducted as it is paid from from retained earning for period of 2020)

2) Calculation of Weihted Average Shares for common Shares Outstanding

400000+2000*9/12 (i.e., for 9 months 2000 shares, April to December)+20100*3/12 (i.e., for 3 months 20100 Shares October to December)=400000+1500+5025 =406525 Common Shares

3) EPS = earning available to common shareholder / weighted no of shares

=603000 / 406525

=1.48

c) Calculation of EPS assuming Prefrence Shares are Cummulative

In cummulative prefrence share Prefrence dividend are Deducted from Net Earning whether declared or not in this case prefrence dividend of 2020 is already paid fro retained earnings

therefore, the answer of this part will be as above (i.e., b part)