When a corporation has both preferred and common stock outstanding earnings per share is computed by dividing net income

Question

Quizplus · Accepted Answer

Earnings per share (EPS) for a corporation with both preferred and common stock is calculated by subtracting preferred dividends from net income and then dividing the result by the weighted average number of common shares outstanding. This method ensures that the earnings attributed to common shareholders are accurately represented, taking into account any dividends that must be paid to preferred shareholders first.

When a Corporation Has Both Preferred and Common Stock Outstanding