Question

On December 31, 2020, Dow Steel Corporation had 640,000 shares of common stock and 34,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $440,000 and $73,000 to common and preferred shareholders, respectively, on December 15, 2021.

On February 28, 2021, Dow sold 57,000 common shares. In keeping with its long-term share repurchase plan, 6,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2021, was $2,300,000. The income tax rate is 25%.

Required:
Compute Dow's earnings per share for the year ended December 31, 2021. (Do not round intermediate calculations. Enter your answers in thousands. Round "Earnings per share" answer to 2 decimal places.)

Numerator	/	Denominator	=	Earnings per share
	/		=

Answer 1

Answer :

Step 1 :

Particularls	Number of shares
Total number of common stock =Share held + (number of shares held * stock dividend% =640000 shares+(640000*4%)	6,65,600
Add: weighted average number of shares = (No. Of shares sold × holding period) + (4% stock dividend on shares sold × holding period) = (57000 shares*10/12) + (4% on 57000 shares*10/12) =(57000 shares*10/12) (1+4%) =(57000 shares* 10/12 )*(1.04)	49,400
Less : weighted average number of shares retired =Number of shares retired*time =6000 shares * 6/12	(3,000)
Total weighted average number of shares	7,12,000

Step 2 :

Earnings per share

=Numerator / Denominator

=[Net income - Preferred dividend] ÷ weighted average number of common shares outstanding

=[$2300000 - $73000] / 7,12,000

=$2227000 / 712000

= $3.128