Question 8BE - Intermediate Accounting (Kieso)

Question

In 2017, Hollis Corporation reported net income of \(1,000,000. It declared and paid preferred stock dividends of \)250,000. During 2017, Hollis had a weighted average of 190,000 common shares outstanding. Compute Hollis’s 2017 earnings per share.

Step-by-Step Solution

Answer

Hollis's earnings per share are $3.95

Meaning of Earnings per share

Earnings per share are an essential element to determine the business's profitability. The price-to-earnings valuation ratio is also calculated using the earnings per share.

Calculation of Earnings per share

$\begin{array}{rcl}\mathrm{Earning} \mathrm{per} \mathrm{share}& =& \frac{(\mathrm{Net} \mathrm{Income}-\mathrm{Preferred} \mathrm{stock} \mathrm{dividend})}{\mathrm{Common} \mathrm{Stock} \mathrm{shares}}\\ & =& \frac{(\$1,000,000-\$250,000)}{190,000}\\ & =& \$3.95\end{array}$