Question

Kramer Inc. had 95 million shares of common stock, 1 million shares of 6%, $100 par, cumulative preferred stock, and 1 million shares of 8%, $100 par, noncumulative preferred stock outstanding at the end of 2017 and 2018. No dividends were declared or paid on common stock in either year. In 2018, a $3 million dividend was paid on the 6% preferred stock and a $4 million dividend was paid on the 8% preferred stock. Net income for 2018 was $300 million. The company's tax rate is 30%.

Compute basic earnings per share for the year ended December 31, 2016.

Answer 1

Answer:

$3.05 per share

Explanation:

The computation of the basic earnings per share is shown below:

Basic earning per share = (Net income - preference dividend) ÷ (Number of shares of common stock)

where,

Net income is $300 million

Preference dividend is

= $100 par × 1 million shares × 6%

= $6

And, the $4 million dividend is also deducted

So, the basic earning per share is

= ($300 - $6 - $4) ÷ (95 million shares)

= $3.05 per share