Arston Company's net income last year was $300,000. The company has 150,000 shares of common stock and 60,000 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 $1.50 per share on the common stock and $0.60 per share on the preferred stock. The earnings per share of common stock is closest to:

Question

Quizplus · Accepted Answer

First, we need to calculate the total dividends paid to each type of stock:

Preferred stock: $0.60 x 60,000 = $36,000

Common stock: $1.50 x 150,000 = $225,000

Total dividends paid: $36,000 + $225,000 = $261,000

Now, we can use the formula for earnings per share of common stock:

EPS = (Net income - Preferred dividends) / Average common shares outstanding

Average common shares outstanding = 150,000 (since there was no change in the number of common shares outstanding during the year)

EPS = ($300,000 - $36,000) / 150,000 = $1.76

Therefore, the earnings per share of common stock is closest to $1.76.

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