Arlberg Company's net income last year was $250,000.The company has 150,000 shares of common stock and 80,000 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 $1.30 per share on the common stock and $1.40 per share on the preferred stock.The earnings per share of common stock are closest to:
A) $.37.
B) $.92.
C) $1.67.
D) $2.41.

Question

Quizplus · Accepted Answer

First, find the total dividends paid on common stock:

$1.30 per share x 150,000 shares = $195,000

Then, calculate the total dividends paid on preferred stock:

$1.40 per share x 80,000 shares = $112,000

The total dividends paid by the company are:

$195,000 + $112,000 = $307,000

Subtract the total dividends from the net income to get the earnings available to common shareholders:

$250,000 - $307,000 = -$57,000

Since there was negative earnings available to common shareholders, the earnings per share of common stock will be negative. Therefore, the closest answer choice is $.92, which represents the earnings per share of preferred stock.

Arlberg Company's Net Income Last Year Was $250,000