35_E - Horngren'S Financial And Managerial Accounting

Question

Computing earnings per share

Faccone Academy Surplus had 60,000 shares of common stock and 9,000 shares of 20%, \(15 par value preferred stock outstanding through December 31, 2018. Income from continuing operations for 2018 was \)711,000, and loss on discontinued operations (net of income tax saving) was $36,000.Compute Faccone’s earnings per share for 2018, starting with income from continuing operations. Round to the nearest cent

Step-by-Step Solution

Answer

Earnings per share for 2018 of the company is $11.4 

Step 1: Basic Introduction

$\begin{array}{rcl}\mathbf{Preferred}\mathbf{ }\mathbf{Dividend}& \mathbf{=}& \mathbf{Number}\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{Shares}\mathbf{\times }\mathbf{Price}\mathbf{ }\mathbf{Per}\mathbf{ }\mathbf{Shares}\mathbf{\times }\mathbf{Dividend}\mathbf{ }\mathbf{Rate}\\ & \mathbf{=}& \mathbf{9}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{15}\mathbf{\times }\mathbf{20}\mathbf{\%}\\ & \mathbf{=}& \mathbf{\$}\mathbf{27}\mathbf{,}\mathbf{000}\end{array}$

Income from continuous operations: $711,000

Outstanding common shares: 60,000 shares

Step 2: Earnings per share

Earnings Per Share
Income from continuous operations	$711,000
Less: Preferred Dividend	$27,000
a.	$684,000
b. Outstanding common shares	60,000
Earnings Per Share (a/b)	$11.4