On December 31, 2015, Dow Steel Corporation had 770,000 shares of common stock a

Question

On December 31, 2015, Dow Steel Corporation had 770,000 shares of common stock and 47,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $570,000 and $86,000 to common and preferred shareholders, respectively, on December 15, 2016. On February 28, 2016, Dow sold 68,000 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, 2016, was $2,950,000. The income tax rate is 40%. Required: Compute Dow's earnings per share for the year ended December 31, 2016. (Do not round intermediate calculations. Enter your answers in thousands.)

Explanation / Answer

Earnings per share = (Net income - preferred dividend) / weighted average common shares outstanding

...............................= ($2,950,000 - $86,000) / Weighted average common shares outstanding

...............................= $2,864,000 / {(770,000 x 1.05) + [68,000 x (10/12)] - [4,000 x (6/12)]}

...............................= $2,864,000 / (808,500 + 56,667 - 2,000)

...............................= $2,864,000 / 863,167

................................= $3.32 per share

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.