The income statement for Manassa Inc. shows income before income taxes $1600000 income tax expenses $820000 and net income $780000. If Manassa declared $300000 of cash dividends on preferred stock and has 200000 shares of common stock outstanding throughout the year earnings per share is:

Question

Quizplus · Accepted Answer

To calculate earnings per share, we need to know the earnings available to common shareholders. This is calculated as:

Net Income - Preferred Dividends / Weighted Average Number of Common Shares Outstanding

Since Manassa Inc. only declares dividends on preferred stock, we can subtract the whole amount of preferred dividends declared from net income to get the earnings available to common shareholders:

$780,000 - $300,000 = $480,000

To calculate the weighted average number of common shares outstanding, we need the number of shares outstanding for the whole year. The problem states that there are 200,000 shares outstanding throughout the year, so this is our weighted average.

Now we can calculate earnings per share:

EPS = $480,000 / 200,000 = $2.40

Therefore, the best choice is B) $2.40.

The Income Statement for Manassa Inc