On December 31 2017 Dow Steel Corporation had 690000 shares

On December 31, 2017, Dow Steel Corporation had 690,000 shares of common stock and 39,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $490,000 and $78,000 to common and preferred shareholders, respectively, on December 15, 2018. On February 28, 2018, Dow sold 56,000 common shares. In keeping with its long-term share repurchase plan, 5,000 shares were retired on July 1. Dow\'s net income for the year ended December 31, 2018, was $2,550,000. The income tax rate is 40%. Required: Compute Dow\'s earnings per share for the year ended December 31, 2018

Solution

Net Income = $ 2550000

Less: Preferred Dividend = $ 78000

Profit availabe = $ 2472000

Calculation of number of shares:

Basic EPS =  $ 2472000 / 771000 = $ 3.20 per share