Hi Sadakathulla,
The correct answer would be c. $2.90, calculated as follows: (NI - PS Div*)/weighted average common shares outstanding = (350,000 - 60,000) / 100,000 = $2.90.
The PS Dividend is the annual dividend if the stock is cumulative, or the declared dividend otherwise. In this case we know the annual dividend was declared and paid, so it is 6% x $100 par x 10,000 preferred shares outstanding.
The weighted average common shares outstanding is simply the 100,000 shares. Treasury shares are deducted from shares
issued to get the shares
outstanding. In this case, the treasury share information is extraneous.
Jeanne
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Jeanne David
Academic
Univ of Detroit Mercy
Farmington Hills MI
United States
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Original Message:
Sent: 04-03-2013 01:28 AM
From: Sadakathulla Poil
Subject: treasury stock and EPS
hi
I have some clarification about treasury stock effects in EPS. Can you please explain?. see below question and comment.
ABC Company reported net income of $350,000 for the year. The company had 10,000 shares of $100 par value, non-cumulative, 6% preferred stock and 100,000 shares of $10 par value common stock outstanding. There were also 5,000 shares of common stock in treasury during the year. Collins declared and paid all preferred dividends as well as a $1 per share dividend on common stock. Collins' earnings per share of common stock for the year was
a. $3.50.
b. $3.33.
c. $2.90.
d. $2.76.
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Sadakathulla Poil
Accountant
Maximus Air Cargo
Abu Dhabi
United Arab Emirates
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