On December 31, 2017, Dow Steel Corporation had 670,000 shares of common stock a
ID: 2521238 • Letter: O
Question
On December 31, 2017, Dow Steel Corporation had 670,000 shares of common stock and 37,000 shares of 7%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $470,000 and $76,000 to common and preferred shareholders, respectively, on December 15, 2018.
On February 28, 2018, Dow sold 51,000 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, 2018, was $2,450,000. The income tax rate is 40%.
Required:
Compute Dow's earnings per share for the year ended December 31, 2018
Explanation / Answer
Basic EPS = Earnings available for equity shareholders / weighted average no of shares
A
Earnings available for equity shareholders
Net Income
$2,450,000
Less: Preference dividend paid (Non-cumulative)
$76,000
Earnings available for equity shareholders
$2,374,000
B
from to Date
No of months
No of shares
Weighted average no of shares
Jan 1st to 31st Dec opening balance
12
670,000
670,000
28th Feb to 1st July fresh issue
4
51,000
17,000
1st July to 31st Dec repurchase
6
4,000
(2,000)
685,000
Ans
Basic EPS (A/B) = 2,374,000/685,000
$3.466
Basic EPS = Earnings available for equity shareholders / weighted average no of shares
A
Earnings available for equity shareholders
Net Income
$2,450,000
Less: Preference dividend paid (Non-cumulative)
$76,000
Earnings available for equity shareholders
$2,374,000
B
from to Date
No of months
No of shares
Weighted average no of shares
Jan 1st to 31st Dec opening balance
12
670,000
670,000
28th Feb to 1st July fresh issue
4
51,000
17,000
1st July to 31st Dec repurchase
6
4,000
(2,000)
685,000
Ans
Basic EPS (A/B) = 2,374,000/685,000
$3.466
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