At December 31,2016,Hansen Corporation had 50,000 shares of common stock and 5,000 shares of 6%,$100 par cumulative preferred stock outstanding.No dividends were declared or paid in 2016.Net income was reported as $200,000.What is basic EPS?
A)$4.00.
B)$3.40.
C)$3.64.
D)$4.02.

Question

Quizplus · Accepted Answer

Basic EPS calculates the earnings per share of common stock. First, preferred dividends must be deducted from net income:

$200,000 - (5,000 preferred shares x $100 par value x 6%) = $170,000

Then, the result is divided by the weighted average number of common shares outstanding:

$170,000 / 50,000 common shares = $3.40 basic EPS.

Therefore, the best choice is B.

At December 31,2016,Hansen Corporation Had 50,000 Shares of Common Stock