The net income of Foster Furniture Inc amounted to 1800000 f

The net income of Foster Furniture, Inc., amounted to $1800,000 for the current year a. Compute the amount of earnings per share assuming that the shares of capital stock outstanding throughout the year consisted of 1. 400,000 shares of $1 par value common stock and no preferred stock 2. 100,000 shares of 8 percent, $100 par value preferred stock and 300,000 shares of $5 par value common stock b. Is the earnings per share figure computed in part a(2) considered to be basic or diluted? Complete this question by entering your answers in the tabs below. Req A1. Req A2 Req B per share assuming that the shares of capital stock outstanding throughout the year consisted of 400,000 shares of $i par value common stock and no preferred stock. Round your answer to 2 dedimal places.) Eanings per share consisted of 400.000 shares of $1 par value common stock and no preferred Req A2

Solution

Answer:

1

Calculation of the earning per share of Foster Future Inc is as under

Situation-1

1

Net income (all applicable to common stock)

$1,800,000

Shares of common stock outstanding throughout the year

400,000

Earnings per share ($1,800,000 / 400,000 shares)

$4.50

Situation-2

2

Net income

$1,800,000

Less: Preferred stock dividend (100,000 x 8% x $100)

800,000

Earnings available for common stock

$1,000,000

Shares of common stock outstanding throughout the year

300,000

Earnings per share ($1,000,000 / 300,000 shares)

$3.33

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2

The (EPS)earnings per share figure calculated for part a (2) is a basic EPS figure. Although company has outstanding both common stock and preferred, such preferred stock must be convertible into common stock in order for resulting in to diluted computation of EPS. The potential conversion of such preferred stock into the common stock is what necessitates disclosure for diluted EPS. Because the preferred stock in this exercise is not convertible, the EPS computation is basic.

1	Net income (all applicable to common stock)	$1,800,000
	Shares of common stock outstanding throughout the year	400,000
	Earnings per share ($1,800,000 / 400,000 shares)	$4.50