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Chapter 16: Question 16 (page 874)

At December 31, 2017, Reid Company had 600,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 200,000 of which were issued on October 1, 2017. Net income for 2017 was \(2,000,000, and dividends declared on preferred stock were \)400,000. Compute Reid’s earnings per common share. (Round to the nearest penny.)

Short Answer

Expert verified

Earnings per common share of Reid Company is $3.56.

Step by step solution

01

The following information is given in the question

Net income (2017): $2,000,000

Preferred Dividend: $400,000

Issued and outstanding Shares: $400,000

October 1 to December 31: $50,000 (200,000 X 3/12)

Weighted Average Shares Outstanding: $450,000 ($ 400,000+ $ 50,000)

02

Computation of earning per share

EarningPerShare=NetIncome-PreferredDividendsWeightedAverageSharesOutstanding=2000000-400000450000=$3·56

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