Question

Throughout the year, Johnson Inc. had the following shares outstanding. There were no shares issued or repurchased during the year.

Preferred shares, $3.00, unlimited number authorized,60,000 issued and outstanding $12,000,000

Common shares, unlimited number authorized, 420,000 issued and outstanding . 24,000,000

Total contributed capital $36,000,000

Net income for the year was $ 1,590,000.

Loss from discontinued operations (net of tax)of $-159,000was included in net income for the year.

Required:

Prepare the basic EPS presentation for the company assuming:

1.The preferred shares are non-cumulative, preferred dividends of $180,000were paid during the year.

2.The preferred shares are non-cumulative, and no dividends were paid during the year.

3.The preferred shares are cumulative, and no dividends were paid during the year.

4.The preferred shares are cumulative, and 2years of dividends and the current dividends were paid in the year.

Answer 1

Earnings Per Share (EPS) = Net Income - Preferred Dividends/Outstanding Common Shares

Before that, the loss from the discontinued operations (net of taxes) should be deducted.

Net income after deducting the loss from the discontinued operations (net of tax) is $1,431,000 ($1,590,000 - $159,000).

1.

EPS = Net Income - Preferred Dividend/Outstanding Common Shares

= ($1,431,000 - $180,000)/420,000 shares

= $2.98 per share1

2.

EPS = Net Income - Preferred Dividend/Outstanding Common Shares

= ($1,431,000 - $0)/420,000 shares

= $3.41 per share

3.

EPS = Net Income - Preferred Dividend/Outstanding Common Shares

= ($1,431,000 - $0)/420,000 shares

= $3.41 per share

Note: No information like percentage of preference shares is given, hence, though preference shares are cumulative but dividends can't be calculated as it is clearly stated that no dividends were paid during the year and also percentage is not given. Therefore, in both second sub part and third sub part, the EPS is same.

4.

EPS = Net Income - Preferred Dividend/Outstanding Common Shares

= [$1,431,000 - ($180,000*3 times)]/420,000 shares

= ($1,431,000 - $540,000)/420,000 shares

= $2.12 per share

Note: It is given as 2 years of dividends were paid but no amount is given so it is assumed that the same amount of $180,000 is paid in last two years along with current year.