Ethelred Corp. reported net income for the current year of $480,000. Ethelred Corp. had 8,500 shares of $100 par value, 15% preferred stock outstanding and 50,000 shares of $10 par value common stock outstanding for the entire year. Earnings per share was:

Question

Quizplus · Accepted Answer

First, we need to calculate the total dividends paid on preferred stock:
Preferred dividends = 8,500 x $100 x 0.15 = $127,500

Next, we subtract preferred dividends from net income to get earnings available to common stockholders:
Earnings available to common stockholders = $480,000 - $127,500 = $352,500

Finally, we divide earnings available to common stockholders by the number of common shares outstanding to get earnings per share:
EPS = $352,500 ÷ 50,000 = $7.05

Therefore, the answer is B.