At the beginning of 2017, a company had 200,000 shares of $5 par value common st

Question

At the beginning of 2017, a company had 200,000 shares of $5 par value common stock outstanding. On august 1, the company issued another 100,000 shares. The company's net income was $425,000. In addition, you are given the following portion of the company's 12/31/17 stockholders equity section of the balance sheet:

preferred stock (4%, $10 par, 60,000 issued and outstanding) $600,000.

calculate the company's earning per share for 2017

a) $1.34 (I know this is incorrect)

b) $1.66

c) $1.76

d) $1.42

e) $1.72

Explanation / Answer

Weighted average number of commom stcok outstanding = (200,000*7/12) + (300,000*5/12)

= 241,667

Preferred dividends = 600,000 * 4% = 24,000

Earnings per share = (Net income - Preferred dividends) / Weighted average number of commom stcok outstanding

= (425,000 - 24,000) / 241,667

= 1.66.

The answer is B.

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