On December 31, 2017, Dow Steel Corporation had 720,000 shares of common stock a
ID: 2522035 • Letter: O
Question
On December 31, 2017, Dow Steel Corporation had 720,000 shares of common stock and 42,000 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 $520,000 and $81,000 to common and preferred shareholders, respectively, on December 15, 2018.
On February 28, 2018, Dow sold 66,000 common shares. In keeping with its long-term share repurchase plan, 8,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2018, was $2,700,000. The income tax rate is 40%.
Required:
Compute Dow's earnings per share for the year ended December 31, 2018.
Explanation / Answer
Calculation of Earnings available for common stock holders for the purpose of EPS: Net Income 2700000 Less:Tax@40% -1080000 Net Income after Tax 1620000 Less:Pref. Dividends -81000 Earnings for common stock holders 1539000 Earnings per share: Weighted average number of shareholders Outstanding(720000*4.5/12) 270000 Sold on feb 28(66000*2/12) 11000 Common stock dividend on may 15(709000+4%)*1.5/12 92170 Repurchase plan(737360-8000)*6/12 368680 741850 Earnings per share = (Earnings for common stock holders/Weighted average number of shareholders) 1539000/741850 2.074543371
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