Questions: A corporation has 4,000 shares, 10% preferred stock of 55.00 par preferred stock, and 8,000 shares of common stock outstanding. The net income for the year is 260,000. Calculate earnings per share. (Round your answer to the nearest cent.)

Solution Steps

To calculate the earnings per share (EPS), we need to first determine the preferred dividends, which is 10% of the par value of the preferred stock. Subtract the preferred dividends from the net income to get the income available to common shareholders. Finally, divide this amount by the number of common shares outstanding to find the EPS.

The preferred dividends can be calculated using the formula: \[ \text{Preferred Dividends} = \text{Preferred Stock Shares} \times \text{Preferred Stock Par Value} \times \text{Preferred Dividend Rate} \] Substituting the values: \[ \text{Preferred Dividends} = 4000 \times 55.00 \times 0.10 = 22000.00 \]

Next, we find the income available to common shareholders by subtracting the preferred dividends from the net income: \[ \text{Income Available to Common} = \text{Net Income} - \text{Preferred Dividends} \] Substituting the values: \[ \text{Income Available to Common} = 260000 - 22000 = 238000.00 \]

Finally, we calculate the earnings per share (EPS) using the formula: \[ \text{EPS} = \frac{\text{Income Available to Common}}{\text{Common Stock Shares}} \] Substituting the values: \[ \text{EPS} = \frac{238000.00}{8000} = 29.75 \]

Final Answer