for the NI available to common stock i deducted 4000 from the 500,000
since the preferred stocks are cumulative i calculated the annual dividend that is 10,000 then multiplied by 2 that is 20,000 and since 16,000 has already been paid i only deducted 4000 from the NI.
Ute Co. had the following capital structure during Year 1 and Year 2:
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Preferred stock, $10 par, 4% cumulative,
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25,000 shares issued and outstanding
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$ 250,000
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Common stock, $5 par, 200,000 shares
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issued and outstanding
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1,000,000
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The preferred stock is not convertible. Ute reported net income of $500,000 for the year ended December 31, Year 2. Ute paid no preferred dividends during Year 1 and paid $16,000 in preferred dividends during Year 2. In its December 31, Year 2, income statement, what amount should Ute report as basic earnings per share?
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Answer (C) is correct.
The amount of BEPS equals income available to common shareholders, divided by the weighted-average number of common shares outstanding. Cumulative preferred dividends, whether or not declared, are included in the calculation. The annual amount is $10,000 ($250,000 × 4%). However, only an amount equal to the dividend that should be declared (whether or not paid) for the current year is included. Thus, the amount of BEPS reported is $2.45 [($500,000 NI – $10,000 cumulative preferred dividends) ÷ 200,000 common shares]. |
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Tayba Al-Mehdar
Analyst
Khobar
Saudi Arabia
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