Consider the following facts: - At the beginning of the year, Company A had 20,0

Question

Consider the following facts: - At the beginning of the year, Company A had 20,000 shares of common shares outstanding. - During the year, it sold another 2,600 shares on July 1. - On November 1, it repurchased 600 shares. - For the year, Company A had net income of $337,600. - Company A also has 15,000 shares of $10 par value, 6%, cumulative preferred stock outstanding. - For the last two years, no dividends have been declared on the preferred stock. In this scenario, the basic earnings per share for Company A is $ _______. $15.08 None of these answers are correct. $16.50 $14.92 $15.65

Explanation / Answer

Preferred Stock Dividend = Current Preferred Stock Dividend + Deferred Preferred Stock Dividend paid

Preferred Stock Dividend = 15000*10*6% + 15000*10*6%

Preferred Stock Dividend = 18000

Weighted Average Common Stock Outstanding = 20000*12/12 + 2600*6/12 - 600*2/12

Weighted Average Common Stock Outstanding = 21200

Basic earnings per share = (Net Income - Preferred Stock Dividend )/Weighted Average Common Stock Outstanding

Basic earnings per share = (337600-18000)/21200

Basic earnings per share = $ 15.08

Answer

$ 15.08

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