Question
In: Accounting
On December 31, 2017, Dow Steel Corporation had 660,000 shares of common stock and 36,000 shares...
On December 31, 2017, Dow Steel Corporation had 660,000 shares
of common stock and 36,000 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
$460,000 and $75,000 to common and preferred shareholders,
respectively, on December 15, 2018.
On February 28, 2018, Dow sold 56,000 common shares. In keeping
with its long-term share repurchase plan, 2,000 shares were retired
on July 1. Dow's net income for the year ended December 31, 2018,
was $2,400,000. The income tax rate is 40%.
Required:
Compute Dow's earnings per share for the year ended December 31,
2018. (Do not round intermediate calculations.
Enter your answers in
thousands.)
Solutions
Expert Solution
| Numerator (Basic
EPS): Net income = $2,400,000; Preferred dividends = $75,000 (because the preferred stock is noncumulative, only include the dividends that are actually paid). |
|||||||||||||
| Denominator (Basic EPS): Weighted average # shares of common stock outstanding. | |||||||||||||
| Period | Weight | Weighted Avg no of shares | |||||||||||
| 01/01 - 12/31 | 660000 shares*12/12 | 660000 | |||||||||||
| 02/28 - 12/31 | 56000 shares *10/12 | 46666.66667 | |||||||||||
| 07/01-12/31 | -2000 shares sold*6/12 | -1000 | |||||||||||
| Weighted average # shares | 705666.6667 | ||||||||||||
| EPS = ($2400000-$75000)/7056670share | |||||||||||||
| 0.329475517 | |||||||||||||
| Numerator (Basic
EPS): Net income = $2,400,000; Preferred dividends = $75,000 (because the preferred stock is noncumulative, only include the dividends that are actually paid). |
|||||||||||||
| Denominator (Basic EPS): Weighted average # shares of common stock outstanding. | |||||||||||||
| Period | Weight | Weighted Avg no of shares | |||||||||||
| 01/01 - 12/31 | 660000 shares*12/12 | 660000 | |||||||||||
| 02/28 - 12/31 | 56000 shares *10/12 | 46666.66667 | |||||||||||
| 07/01-12/31 | -2000 shares sold*6/12 | -1000 | |||||||||||
| Weighted average # shares | 705666.6667 | ||||||||||||
| EPS = ($2400000-$75000)/705667share | |||||||||||||
| 3.29475517 | |||||||||||||
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