Net income for a corporation for the current year amounts to $200,000.The corporation currently has outstanding 5,000 shares of $5,cumulative preferred shares and 20,000 common shares.The numerator to be used in the earnings per share calculation is:

Question

Quizplus · Accepted Answer

The numerator for the earnings per share (EPS) calculation should be the net income available to common shareholders, which is the net income minus preferred dividends. Since the preferred shares are $5 cumulative and there are 5,000 of them, the total preferred dividends are $5 * 5,000 = $25,000. Subtracting this from the net income of $200,000 gives $200,000 - $25,000 = $175,000.

Net Income for a Corporation for the Current Year Amounts