On December 31, 2020, Dow Steel Corporation had 650,000 shares of common stock and 35,000 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 $450,000 and $74,000 to common and preferred shareholders, respectively, on December 15, 2021.

On February 28, 2021, Dow sold 64,000 common shares. In keeping with its long-term share repurchase plan, 7,000 shares were retired on July 1. Dow's net Income for the year ended December 31, 2021, was $2,350,000. The Income tax rate is 25%

Required: Compute Dow's earnings per share for the year ended December 31, 2021.

$3.10 per share

Explanation:

The computation of the earning per share

Earnings per share = Net income - preference dividend ÷ Weighted average number of shares

where,

Net income for the year is $2,350,000

And, the preference dividend is $74,000

And,  the Weighted average number of shares is

Particulars       No of shares       No of months    Stock dividend    Calculation

Weighted average shares

As on Dec 31, 2017    650,000   12 months   5%   (650,000 × 12 ÷ 12) × 105%

682,500

On Feb 28, 2018      64,000    10 months    5%    (64,000 × 10 ÷ 12) × 105%

56,000  

Less: Shares repurchased  7,000   6   -(7,000 ×6 ÷12)          (3,500)

Weighted average no of shares                                                735,000

So, the earning per share is

= ($2,350,000 - $74,000) ÷ (735,000 shares)

= $3.10 per share

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