ABC Inc.has 20,000 common shares outstanding throughout the year.It also had 20,000, 6 percent preferred shares, par $20, (cumulative and nonconvertible)outstanding throughout the year.Net income was $300,000.The earnings per share amount would be
$13.80

Question

Quizplus · Accepted Answer

The earnings per share (EPS) calculation for common shares does not directly include preferred dividends. First, you calculate the preferred dividends: 20,000 shares * $20 * 6% = $24,000. Then, subtract this from the net income: $300,000 - $24,000 = $276,000. Finally, divide by the number of common shares: $276,000 / 20,000 = $13.80. However, the statement is misleading as it implies the $13.80 is directly calculated without considering the preferred dividends, which are indeed factored into the EPS calculation for common shares. The correct EPS calculation acknowledges the preferred dividends.

ABC IncHas 20,000 Common Shares Outstanding Throughout the Year