At December 31, 2014 Rice Company had 300,000 shares of common stock and 10,000 shares of 8%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2014 or 2015. On January 30, 2016, prior to the issuance of its financial statements for the year ended December 31, 2015, Rice declared a 100% stock dividend on its common stock. Net income for 2015 was $1,520,000. In its 2015 financial statements, Rice's 2015 earnings per common share should be

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The earnings per share (EPS) calculation for 2015 should consider the stock dividend as if it had occurred at the beginning of the year because it changes the number of shares outstanding without changing the equity. The preferred dividends must be subtracted from net income before calculating EPS for common stock. The preferred dividends are 10,000 shares * $100 * 8% = $80,000. The net income available for common stockholders is $1,520,000 - $80,000 = $1,440,000. After the 100% stock dividend, the number of common shares is 600,000. Therefore, EPS = $1,440,000 / 600,000 = $2.40.

At December 31, 2014 Rice Company Had 300,000 Shares of Common