Question

At January 1, 2020, Headland Company’s outstanding shares included the following.

295,000 shares of $50 par value, 7% cumulative preferred stock

854,000 shares of $1 par value common stock

Net income for 2020 was $2,499,000. No cash dividends were declared or paid during 2020. On February 15, 2021, however, all preferred dividends in arrears were paid, together with a 5% stock dividend on common shares. There were no dividends in arrears prior to 2020.

On April 1, 2020, 436,000 shares of common stock were sold for $10 per share, and on October 1, 2020, 106,000 shares of common stock were purchased for $21 per share and held as treasury stock.

Compute earnings per share for 2020. Assume that financial statements for 2020 were issued in March 2021. (Round answer to 2 decimal places, e.g. $2.55.)

Earnings per share

$

Answer 1

Basic EPS = Earning Available for Equity Holder

                       Weighted Average No. of Shares

                = $ 1,466,500 / 1,145,500 Shares

                = $ 1.28 per shares

Earning Available =

Net Income                                       $2,499,000

Less-Pref. Dividend

(7% X $ 50X 295000 Shares) $1,032,500

Earning Available = $ 1,466,500