Question

At December 31, 2021 and 2020, P Co. had 50,000 shares of common stock and 5,000...

At December 31, 2021 and 2020, P Co. had 50,000 shares of common stock and 5,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2021 or 2020. Net income for 2021 was $500,000. For 2021, basic earnings per common share amounted to:

Group of answer choices

$9.50.

$5.00.

$9.00.

$10.00.

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Homework Answers

Answer #1

Solution :

The Answer is (a) $ 9.50.

Working :

Earning per Common Share = Earning Attributable to Common Shareholders / No. of Common Share

Earning Attributable to Common Shareholders = Net Income - Dividend to Preferred Stock

= $ 500,000 - (5,000 * 100 * 5%)

= $ 475,000

Since the preferred stocks are cumulative, dividend to these stock will be deducted even if it is not declared.

No. of Common Share = 50,000

EPS for Common Share = $ 475,000 / 50,000

= $ 9.50

Please vote up and write your doubts in comment section. Would be glad to help you further.

  

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