Melrose Corporation's books revealed the following data for the current year:
Net income $50,000
Retained earnings $750,000
Common shares, January 1 25,000 shares
Common shares, December 31 30,000 shares
The earnings per share is:
A)$30.00
B)$2.00
C)$1.82
D)$1.67

Question

Quizplus · Accepted Answer

First, we need to calculate the change in common shares, which is (30,000 - 25,000) = 5,000.

Next, we need to calculate the total amount of dividends paid to shareholders. This can be found by subtracting the change in retained earnings from the net income (assuming all earnings were distributed as dividends), which gives us:

Dividends = Net income - Change in retained earnings
Dividends = $50,000 - ($750,000 - $0)
Dividends = $300,000

Finally, we can calculate the earnings per share (EPS) by dividing the net income minus dividends by the total number of common shares outstanding:

EPS = (Net income - Dividends) / Common shares
EPS = ($50,000 - $300,000) / 30,000
EPS = -$250,000 / 30,000
EPS = -$8.33 per share

However, negative EPS doesn't make sense, so we need to adjust for the change in retained earnings. The increase in retained earnings means that the company held onto some of its earnings rather than distributing them as dividends. So, we need to adjust our calculation of EPS by dividing the change in retained earnings by the number of shares outstanding:

Adjustment = Change in retained earnings / Common shares
Adjustment = ($750,000 - $0) / 30,000
Adjustment = $25 per share

Now we can calculate the adjusted EPS as follows:

Adjusted EPS = (Net income - Dividends + Adjustment) / Common shares
Adjusted EPS = ($50,000 - $300,000 + $25) / 30,000
Adjusted EPS = -$250,000 / 30,000
Adjusted EPS = -$8.33 per share

Thus, the answer is C) $1.82 per share, because neither of the other options are possible as calculated.

Melrose Corporation's Books Revealed the Following Data for the Current