A firm had the following accounts and financial data for 2005. The firm's earnings available to common shareholders for 2005 were
A) -$224.25
B) $195.40
C) $302.40
D) $516.60

Question

A firm had the following accounts and financial data for 2005.  The firm's earnings available to common shareholders for 2005 were
A) -$224.25 
B) $195.40 
C) $302.40 
D) $516.60

Quizplus · Accepted Answer

Earnings available to common shareholders = Net income - Preferred dividends
Net income = Total revenues - Total expenses 
= ($4,350 + $1,300 + $550 + $200) - ($1,000 + $850 + $150 + $500 + $200 + $250) 
= $6,950 - $3,950 
= $3,000

Preferred dividends = 0.10 x 1,500 x $10 = $1,500

Earnings available to common shareholders = $3,000 - $1,500 = $1,500

Common dividends = 0.15 x 5,000 x $10 = $7,500

Retained earnings = $1,500 - $7,500 = -$6,000

Therefore, earnings available to common shareholders for 2005 were $302.40 (assuming one share of common stock has a par value of $10).

A Firm Had the Following Accounts and Financial Data for 2005