Question

# Junkyard Arts, Inc., had earnings of \$316,000 for 2016. The company had 40,000 shares of common...

Junkyard Arts, Inc., had earnings of \$316,000 for 2016. The company had 40,000 shares of common stock outstanding during the year. In addition, the company issued 15,000 shares of \$50 par value preferred stock on January 9, 2016. The preferred stock has a dividend of \$1.60 per share. There were no transactions in either common or preferred stock during 2016. Determine the basic earnings per share for Junkyard Arts.

 Solution: Basic earnings per share (EPS) =\$7.30 per share Working Notes: Basic earnings per share (EPS) = Earning for equity shareholders / Number of equity shares outstanding =\$292,000/40,000 =\$7.30 per share Earnings for equity shareholders = Net income - Preferred dividend =\$316,000 - (\$1.60 x 15,000) =\$316,000 - \$24,000 =\$292,000 Please feel free to ask if anything about above solution in comment section of the question.

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