Randstad,Inc. Information from the financial statements is provided below:
$\begin{array}{ll}
& \underline{ 2015 }& \underline { 2014 }\
\text { Net income } & \$ 150,000 & \$ 120,000 \
\text { Cash dividends paid on preferred stock } &15,000 & 15,000 \
\text { Cash dividends paid on common stock } &42,000 & 38,000 \
\text { Average number of preferred shares outstanding } &20,000 & 20,000 \
\text { Average number of common shares outstanding } &105,000 & 95,000 \
\text { Market price per share of common stock at year-end } &25.10 & 22.70
\end{array}$
-Refer to Randstad,Inc.Earnings per share for 2015 would be reported as
A)$1.08
B)$1.20
C)$1.29
D)$1.43

Question

Randstad,Inc. Information from the financial statements is provided below:
$\begin{array}{ll}
&  \underline{ 2015 }&  \underline { 2014 }\
\text { Net income } & \$ 150,000 & \$ 120,000 \
\text { Cash dividends paid on preferred stock } &15,000 & 15,000 \
\text { Cash dividends paid on common stock } &42,000 & 38,000 \
\text { Average number of preferred shares outstanding } &20,000 & 20,000 \
\text { Average number of common shares outstanding } &105,000 & 95,000 \
\text { Market price per share of common stock at year-end } &25.10 & 22.70
\end{array}$ 
-Refer to Randstad,Inc.Earnings per share for 2015 would be reported as
A)$1.08
B)$1.20
C)$1.29
D)$1.43

Quizplus · Accepted Answer

Earnings per share (EPS) is calculated as net income minus preferred dividends divided by the weighted average number of common shares outstanding.

Net income minus preferred dividends:
$150,000 - $15,000 = $135,000

Weighted average number of common shares outstanding:
(105,000 + 95,000) / 2 = 100,000

EPS = $135,000 / 100,000 = $1.35

However, we are also given the market price per share of common stock at year-end, which may be used to calculate the diluted EPS if there are any potential dilutive securities, but they are not mentioned here. Therefore, the basic EPS for 2015 is $1.35.

The closest answer choice is C) $1.29, which may have been calculated by dividing net income minus preferred dividends by the number of outstanding common shares at the end of the year (105,000). However, this method does not account for any changes in the number of shares throughout the year, which is why the weighted average number of shares is used.

Randstad,Inc -Refer to Randstad,Inc