Question

On December 31, 2017, Dow Steel Corporation had 720,000 shares of common stock and 42,000 shares...

On December 31, 2017, Dow Steel Corporation had 720,000 shares of common stock and 42,000 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 $520,000 and $81,000 to common and preferred shareholders, respectively, on December 15, 2018.

On February 28, 2018, Dow sold 66,000 common shares. In keeping with its long-term share repurchase plan, 8,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2018, was $2,700,000. The income tax rate is 40%.
  
Required:
Compute Dow's earnings per share for the year ended December 31, 2018.

Business   Accounting   
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Answer #1
Calculation of Earnings available for common stock holders for the purpose of EPS:
Net Income 2700000
Less:Tax@40% -1080000
Net Income after Tax 1620000
Less:Pref. Dividends -81000
Earnings for common stock holders 1539000
Earnings per share:
Weighted average number of shareholders
Outstanding(720000*4.5/12) 270000
Sold on feb 28(66000*2/12) 11000
Common stock dividend on may 15(709000+4%)*1.5/12 92170
Repurchase plan(737360-8000)*6/12 368680
741850
Earnings per share = (Earnings for common stock holders/Weighted average number of shareholders)
1539000/741850
2.074543371
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