Q10E
Question
Question: (Earnings per Share) The stockholders’ equity section of Hendly Corporation appears below as of December 31, 2017.
8% preferred stock, \(50 par value, authorized
100,000 shares, outstanding 90,000 shares \)4,500,000
Common stock, \(1.00 par, authorized and issued 10 million shares 10,000,000
Additional paid-in capital 20,500,000
Retained earnings \)134,000,000
Net income 33,000,000167,000,000
\(202,000,000
Net income for 2017 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of \)18,000,000 (before tax) as a result of a non-recurring major casualty. Preferred stock dividends of \(360,000 were declared and paid in 2017. Dividends of \)1,000,000 were declared and paid to common stockholders in 2017.
Instructions
Compute earnings per share data as it should appear on the income statement of Hendly Corporation.
Step-by-Step Solution
VerifiedThe earnings per share of the company is $3.26.
The earnings per share denote the monetary per-share earnings on the outstanding common stock of a company. It is obtained by dividing the net income by the outstanding number of shares.
| Computation of Earnings per share | |
Net Income after tax | $33,000,000 |
Net income before tax (33,000,000/66%) | 50,000,000 |
Add: Major Casualty Loss | 18,000,000 |
Income from operations | 68,000,000 |
Income Tax (68,000,000X34%) | 23,120,000 |
Income before extraordinary item | 44,880,000 |
Extraordinary item: | |
Casualty Loss | $18,000,000 |
Less: Applicable income tax reduction | 6,120,000 |
Net income | $33,000,000 |
Less: Provision for preferred dividends | 360,000 |
Income available for common shareholders | $32,640,000 |
Common Shares | 10,000,000 |
Earnings per share (32,640,000/10,000,000) | $3.26 |
Income Statement presentation per share of common stock | |
Income before extraordinary item | $4.45 |
Extraordinary item | (1.19) |
Net income | $3.26 |