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Chapter 13: Q37E_1 (page 717)

Computing earnings per share and price/earnings ratio

Rocket Corp. earned net income of \(153,040 and paid the minimum dividend to preferred stockholders for 2018. Assume that there are no changes in common shares outstanding during 2018. Rocket’s books include the following figures:

Preferred Stock—6%, \)60 par value; 2,000 shares authorized, 1,000

shares issued and outstanding \( 60,000

Common Stock—\)5 par value; 80,000 shares authorized, 48,000 shares

issued, 46,700 shares outstanding 240,000

Paid-In Capital in Excess of Par—Common 470,000

Treasury Stock—Common; 1,300 shares at cost (26,000)

Requirements

1. Compute Rocket’s EPS for the year.

Short Answer

Expert verified

Earnings per share of the company is $3.16

Step by step solution

01

Basic Introduction-

Net income: $153,040

PreferredDividend=NumberofShares×ValuePerShare×DividendRate=1,000×$60×6%=$3,600

WeightedAverageNumberofEquitySharesOutstanding=NumberofStocksatBegining+NumberofStocksatBegining-TreasuryStock2=46,700+46,700-1,3002=46,050

02

Computation of Earnings Per Share-

Earnings per share

Net income

$153,040

Preferred dividend

($3,600)

a.

$149,440

b. weighted average number of equity share outstanding

$46,050

Earnings per share (a/b)

$3.25

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Most popular questions from this chapter

Question: Journalizing a small stock dividend

Element Water Sports has 13,000 shares of \(1 par value common stock outstanding.

Element distributes a 5% stock dividend when the market value of its stock is \)15 per share.

Requirements

3. What is the overall effect on total stockholders’ equity?

Question: Journalizing a large stock dividend

Nelly, Inc. had 320,000 shares of \(2 par value common stock issued and outstanding as of December 15, 2018. The company is authorized to issue 1,300,000 common shares. On December 15, 2018, Nelly declared a 40% stock dividend when the market value for Nelly’s common stock was \)7 per share. The stock was issued on Dec. 30.

Requirements

1. Journalize the declaration and distribution of the stock dividend.

Journalizing treasury stock transactions and reporting stockholders’ equity

Southern Amusements Corporation had the following stockholders’ equity on

November 30:

Paid-In Capital:

Common Stock—\(5 Par Value; 1,300 sharesauthorized, 250 shares issued and outstanding1,250

Retained Earnings50,000

Total Stockholders’ Equity \) 55,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 3,750

Total Paid-In Capital

\(5,000

On December 30, Southern purchased 200 shares of treasury stock at \)15 per share.

Requirements

2. Prepare the stockholders’ equity section of the balance sheet at December 31, 2018. Assume the balance in retained earnings is unchanged from November 30.

Question: Copperhead Trust has the following classes of stock:

Preferred Stock—6%, \(12 par value; 8,500 shares authorized, 7,000 shares issued and outstanding

Common Stock—\)0.10 par value; 2,100,000 shares authorized, 1,400,000 shares issued and outstanding

Requirements

2. Assume the preferred stock is cumulative and Copperhead passed the preferred dividend in 2016 and 2017. In 2018, the company declares cash dividends of $46,000. How much of the dividend goes to preferred stockholders? How much goes to common stockholders?

What does the rate of return on common stock show, and how is it calculated?
See all solutions

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