Designs,Inc.had 4,000 shares of $7,$100 par preferred stock and 50,000 shares of common stock outstanding throughout 2018.During 2018,Designs declared a dividend of $7 per share on its common stock.Compute earnings per share for 2018 if Designs' income statement showed net income of $630,000.

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Quizplus · Accepted Answer

Earnings Per Share (EPS) is calculated by dividing the net income available to common shareholders by the average number of common shares outstanding. The preferred dividends must be subtracted from the net income before dividing by the number of common shares. Preferred dividends = 4,000 shares * $7 = $28,000. Net income available for common shareholders = $630,000 - $28,000 = $602,000. EPS = $602,000 / 50,000 shares = $12.04 per share.