Wendell Corporation reported net income for the current year of $800,000.Wendell had 5,000 shares of $100 par value,10% preferred stock outstanding and 40,000 shares of $1 par value common stock outstanding for the entire year.Earnings per share is:
A)$16.67.
B)$17.77.
C)$18.75.
D)$20.00.

Question

Quizplus · Accepted Answer

First, we need to calculate the total dividends paid for the preferred stock.

Preferred dividends = (Number of preferred shares) x (Par value per share) x (Annual dividend rate)

Preferred dividends = 5,000 x $100 x 0.10 = $50,000

Subtracting this from the net income gives us the earnings available to common shareholders:

Earnings available to common shareholders = Net income - Preferred dividends

Earnings available to common shareholders = $800,000 - $50,000 = $750,000

Finally, we can calculate earnings per share for the common stock:

Earnings per share = (Earnings available to common shareholders) / (Number of common shares outstanding)

Earnings per share = $750,000 / 40,000 = $18.75

Therefore, the answer is C, $18.75.

Wendell Corporation Reported Net Income for the Current Year of $800,000.Wendell