Kramer Inc. had 86 million shares of common stock, 1 million shares of 5%, $100

Question

Kramer Inc. had 86 million shares of common stock, 1 million shares of 5%, $100 par, cumulative preferred stock, and 1 million shares of 7%, $100 par, noncumulative preferred stock outstanding at the end of 2015 and 2016. No dividends were declared or paid on common stock in either year. In 2016, a $2.1 million dividend was paid on the 5% preferred stock and a $3.1 million dividend was paid on the 7% preferred stock. Net income for 2016 was $291 million. The company's tax rate is 30%.

Compute basic earnings per share for the year ended December 31, 2016.

Explanation / Answer

Basic Earnings Per Share= $291-(5%*$100*1)-3.1/86

=$3.29

Note: Cumulative Preference dividend has to be paid each year hence to calculate Basic EPS we have to deduct the whole Cumulative Preference dividend.

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