On December 31, 2017, Dow Steel Corporation had 610,000 shares of common stock a

Question

On December 31, 2017, Dow Steel Corporation had 610,000 shares of common stock and 31,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $410,000 and $70,000 to common and preferred shareholders, respectively, on December 15, 2018 10 points On February 28, 2018, Dow sold 63,000 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 $2,150,000. The income tax rate is 40%. Skipped Required: Compute Dow's earnings per share for the year ended December 31, 2018. (Do not round intermediate calculations. Enter your answers in thousands.) eBook Numerator Denominator Earnings per share

Explanation / Answer

Earnings Per Share = Earnings available for common Stock/Weighted Avg No. of shares outstanding

(All the amounts are in thousands)

Earnings available for common Stock = Net Income - Preferred Dividends

= $2,150 - $70 = $2,080

Weighted Avg No. of shares outstanding = Beginning Shares (after stock dividend adjustment)+New shares sold (after stock dividend adjustment)-Shares Retired

= (610 shares*1.04*12/12)+(63 shares*10/12*1.04)-(2 shares*6/12)

= 634.40 shares+54.60 shares-1 shares = 688 shares

Earnings per share = $2,080/688 shares = $3.02 per share

Therefore Dow's earnings per share for the year ending December 31, 2018 is $3.02 per share.

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