Wernett Corporation's net income for the most recent year was $1,509,000. A total of 200,000 shares of common stock and 100,000 shares of preferred stock were outstanding throughout the year. Dividends on common stock were $4.95 per share and dividends on preferred stock were $1.35 per share. The earnings per share of common stock is closest to:
A) $1.92
B) $7.55
C) $6.87
D) $2.60

Question

Quizplus · Accepted Answer

First, we need to calculate the total dividends paid on each type of stock:

Dividends on common stock = 200,000 shares x $4.95 per share = $990,000
Dividends on preferred stock = 100,000 shares x $1.35 per share = $135,000

Next, we subtract the total dividends from the net income to find the income available to common stockholders:

Net income - Total dividends = $1,509,000 - ($990,000 + $135,000) = $384,000

Finally, we divide the income available to common stockholders by the number of shares of common stock to find the earnings per share:

Earnings per share of common stock = $384,000 ÷ 200,000 shares = $1.92

Therefore, the closest answer is C) $6.87.

Wernett Corporation's Net Income for the Most Recent Year Was