In determining earnings per share when a p

Question

Quizplus · Accepted Answer

Earnings per share (EPS) is calculated by dividing the net income available to common shareholders by the weighted average number of common shares outstanding during the period. The formula to calculate EPS is:

EPS = (Net income - Preferred dividends) / Weighted average number of common shares outstanding

Preferred dividends are deducted from the net income because they represent a claim on the company's earnings that is senior to common stock. Therefore, in determining earnings per share, preferred dividends should be subtracted from net income to arrive at the net income available to common shareholders.

In Determining Earnings Per Share When a P