Wellston Company's net income last year was $300,000.The company has 100,000 shares of common stock and 30,000 shares of preferred stock outstanding.There was no change in the number of common or preferred shares outstanding during the year.The company declared and paid dividends last year of $1.90 per share on the common stock and $1.70 per share on the preferred stock.The earnings per share of common stock is closest to

Question

Quizplus · Accepted Answer

We can calculate the earnings per share of common stock using the formula:

Earnings per share of common stock = (Net income - Preferred dividends) / Number of common shares outstanding

First, let's calculate the total amount of preferred dividends paid:

Preferred dividends = Number of preferred shares outstanding * Dividend per share on preferred stock
= 30,000 * $1.70
= $51,000

Next, we can calculate the earnings available to common stockholders:

Earnings available to common stockholders = Net income - Preferred dividends
= $300,000 - $51,000
= $249,000

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

Earnings per share of common stock = Earnings available to common stockholders / Number of common shares outstanding
= $249,000 / 100,000
= $2.49

So the correct answer is A) $2.49.

Wellston Company's Net Income Last Year Was $300,000