Question

Arquandt Company's net income last year was $550,000. The company has 150,000 shares of common stock...

Arquandt Company's net income last year was $550,000. The company has 150,000 shares of common stock and 50,000 shares of preferred stock outstanding. There was no change in the number of common or preferred shares outstanding during the year. The company declared and paid dividends last year of $1.20 per share on the common stock and $1.70 per share on the preferred stock. The earnings per share of common stock are closest to:

a

$2.47.

b

$3.10.

c

$6.67.

d

$4.23.
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Homework Answers

Answer #1

Earnings per share

The following is the formula for calculating earnings per share.

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

Net income =$550,000

Preferred dividend = 50,000 × 1.70 = $85,000

Weighted average number of common shares outstanding = 150,000

Earnings per share

= (550,000 - 85,000) / 150,000 = $3.10

Option b $3.10 is CORRECT

The above detailed calculations and equations clearly indicate that other three options are incorrect.

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