Problem 19-11 EPS; nonconvertible preferred stock; treasury shares; shares sold;
ID: 2529024 • Letter: P
Question
Problem 19-11 EPS; nonconvertible preferred stock; treasury shares; shares sold; stock dividend [LO19-4, 19-5, 19-6, 19-7] On December 31, 2015, Dow Steel Corporation had 800,000 shares of common stock and 50,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $600,000 and $89,000 to common and preferred shareholders, respectively, on December 15, 2016. On February 28, 2016, Dow sold 75,000 common shares. In keeping with its long-term share repurchase plan, 4,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2016, was $3,100,000. The income tax rate is 40%. Required: Compute Dow's earnings per share for the year ended December 31, 2016. (Do not round intermediate calculations. Enter your answers in thousands.)
Explanation / Answer
Profit Before Tax = 3100000
Less - Income Tax @40% = (1240000)
Profit After Tax = 1860000
Less - Dividend Paid = (689000)
Profit After Dividend = 1171000
Earning Per Share (1171000/903000) = $ 1.30 per share
* No. of share outstanding = (800000 +32000 + 75000 - 4000) = 903000 shares