Question

1. Schaefer Co. reported net income of $191,150 for its fiscal year ended January 31, 2019. At the beginning of that fiscal year, 50,000 shares of common stock were outstanding. On October 31, 2018, an additional 15,000 shares were issued. No other changes in common shares outstanding occurred during the year. Also during the year, the company paid the annual dividend on the 20,000 shares of 6%, $50 par value preferred stock that were outstanding the entire year.

   1. Calculate basic earnings per share of common stock for the year ended January 31, 2019.

   2. If Schaefer's preferred stock were convertible into common stock, what additional calculation would be required?

Answer 1

-Computation of basic earring per share Basic earning per share : = Net income available to common stockholders. weighted average outstanding bumber shares Net Income - Dividend paid to preferred - Stockholders s (20,000+ $50 x 6%). $ 191150 $ (60,000) $131150 Bo weighter average number of shares = 50,000x12 + 15000x22 = 53750 Basic earning per share = $131150 53750 shares Basic EPS = $2.44

computation of diluted stock were convertible into EPS if prefer common stock Diluted EPS = Net Income weighted average number of shares t diluted Share - $191150 53750 + 20,000 E $ lal150 73750 2 Diluted EPS = $2.59 Canti-dilutive)