Principles of Managerial Finance Vol 14 P3-10 Statement of retained earnings Hay

Question

Principles of Managerial Finance Vol 14

P3-10 Statement of retained earnings

Hayes Enterprises began 2015 with a retained earnings balance of $928,000. During 2015, the firm earned $377,000 after taxes. From this amount, preferred stockholders were paid $47,000 in dividends. At year-end 2015, the firm’s retained earnings totaled $1,048,000. The firm had 140,000 shares of common stock outstanding during 2015.

a.) Prepare a statement of retained earnings for the year ended December 31, 2015, for Hayes Enterprises. (Note: Be sure to calculate and include the amount of cash dividends paid in 2015.)

b.) Calculate the firm’s 2015 earnings per share (EPS).

c.) How large a per-share cash dividend did the firm pay on common stock during 2015?

Explanation / Answer

Hayes Enterprises

a) Statement of retained earnings for the year ended December 31, 2015

b) The firm’s 2015 earnings per share (EPS) =( Earnings after tax - Preferred Dividend) / common stock

=( $377000 - $47000 ) / 140000 = $2.35 per Equity share (common stock)

c) Per-share cash dividend paid on common stock during 2015 = $ 1.5 per share ( explained in a. above)

PARTICULARS AMOUNT (IN $) DETAILS OPENING BALANCE 928000 AS ON JAN. 1, 2015 ADD: FIRMS' EARNINGS AFTER TAX 377000 DURING 2015 1305000 LESS: PREF. DIVIDEND PAID 47000 TO PREFERRED SHAREHOLDERS 1258000 LESS: CASH DIVIDEND PAID (BALANCING FIGURE) $210000 TO EQUITY SHARHOLDERS @ $1.5 PER SHARE CLOSING BALANCE $1048000 AS ON DEC. 31, 2015

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