On December 31, 2017, Dow Steel Corporation had 640,000 shares of common stock a

Question

On December 31, 2017, Dow Steel Corporation had 640,000 shares of common stock and 34,000 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 $440,000 and $73,000 to common and preferred shareholders, respectively, on December 15, 2018.

On February 28, 2018, Dow sold 57,000 common shares. In keeping with its long-term share repurchase plan, 6,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2018, was $2,300,000. The income tax rate is 40%.
  
Required:
Compute Dow's earnings per share for the year ended December 31, 2018. (Do not round intermediate calculations. Enter your answers in thousands.)

Explanation / Answer

Computation of Dow's Basic Earnings Per Share for the year ended December 31, 2018

Basic EPS = $ 3.25 / Share

Net Income = $23,00,000 Minus Preferred dividends

                    =   $ 23,00,000 - $ 73,000

                     = $ 22,27,000

Weighted average number of shares of common stock outstanding.

= (6,40,000 x 12/12) + (57,000 x 10/12) – (6,000 x 6/12)

= 6,40,000 + 47,500 – 3,000

= 6,84,500 Shares

Basic EPS = Net Income / No of shares outstanding

= $ 22,27,000 / 684500 Shares

= $ 3.25 / Share

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