On December 31, 2009, Kallman Corporation had 160,000 shares of common stock issued and outstanding. On April 1, 2010, an additional 40,000 shares of common stock were issued for cash. During 2010, Kallman declared and paid dividends of $150,000 on its 20,000 shares of nonconvertible preferred stock. Net income for 2010 amounted to $400,000. Kallman's earnings per share of common stock (rounded to the nearest cent) for 2010 are

Question

Quizplus · Accepted Answer

First, we need to calculate the weighted average number of common shares outstanding for the year:

160,000 shares outstanding on 12/31/09 
+ 40,000 shares issued on 4/1/10 
= 200,000 average shares outstanding

Next, we calculate the earnings available for common stockholders:

Net income - preferred dividends = earnings available for common 
$400,000 - $150,000 = $250,000

Finally, we divide the earnings available for common by the weighted average number of common shares outstanding:

$250,000 ÷ 200,000 = $1.25 per share

Therefore, the correct answer is B, $1.32 (rounded to the nearest cent).

On December 31, 2009, Kallman Corporation Had 160,000 Shares of Common