Robertson Corporation reported net income for Year 1 of $250,000 and Year 2 of $300,000.The weighted-average common shares outstanding 100,000 in Year 1 and 120,000 in Year 2.Robertson also has 10,000 shares of $100 par value,cumulative,5% preferred stock outstanding in both years.Dividends were not declared in Year 1,but both years' dividends were declared and paid in Year 2.Compute EPS for both years.

Question

Quizplus · Accepted Answer

Basic EPS for Year 1 = Net Income / Weighted-average common shares outstanding
                       = $250,000 / 100,000
                       = $2.50
No dividends were declared, so preferred stock has no impact on basic EPS in Year 1.

Basic EPS for Year 2 = (Net Income - Preferred dividends) / Weighted-average common shares outstanding
                       = ($300,000 - (10,000 * $100 * 5%)) / 120,000
                       = $2.08
Preferred dividends were declared and paid in Year 2, so we need to subtract them from net income to calculate EPS.

Therefore, the answer is B.

Robertson Corporation Reported Net Income for Year 1 of $250,000