Relish Holdings had 250,000 shares of common stock outstanding and 40,000 shares of preferred stock outstanding.No shares were issued or repurchased during the year.The company paid a dividend of $1.50 per share of common stock and $2 per share of preferred stock.If the company reported earnings per common share of $1.60, how much would net income have been?

Question

Quizplus · Accepted Answer

Net income can be calculated by adding the total dividends paid to common and preferred shareholders to the earnings retained (which is earnings per share multiplied by the number of common shares). For common stock: 250,000 shares * $1.60 = $400,000. For preferred stock: 40,000 shares * $2 = $80,000. Total dividends paid = (250,000 shares * $1.50) + (40,000 shares * $2) = $375,000 + $80,000 = $455,000. Therefore, net income = $400,000 (retained earnings) + $455,000 (dividends) = $855,000. However, since none of the provided options match this calculation, it seems there was a mistake in my calculation process. Re-evaluating the approach: The correct calculation should focus directly on the earnings per share formula, which is Net Income - Preferred Dividends / Weighted Average Common Shares. Rearranging this formula to solve for Net Income gives us: Net Income = (Earnings per Share * Common Shares) + Preferred Dividends. Using the given data: Net Income = ($1.60 * 250,000) + ($2 * 40,000) = $400,000 + $80,000 = $480,000.

Relish Holdings Had 250,000 Shares of Common Stock Outstanding and 40,000