Big Apple Cabins has net income of $725,000.Throughout the year,the company had 150,000 shares of common stock outstanding.Also,the company has 25,000 shares of preferred stock that pay a dividend of $5.00 per share that is convertible into 5 shares of common stock for each share of preferred.The preferred stock is considered to be dilutive.The tax rate for Big Apple Cabins is 40%.What are the basic earnings per share for Big Apple Cabins?
A)$2.50
B)$2.71
C)$2.86
D)$3.64
E)$4.00

Question

Quizplus · Accepted Answer

Basic earnings per share (EPS) is calculated as (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding. The preferred dividends are 25,000 shares * $5 = $125,000. Thus, Basic EPS = ($725,000 - $125,000) / 150,000 = $4.00.

Big Apple Cabins Has Net Income of $725,000