Question

Exercise 16-20 On January 1, 2017, Cheyenne Industries had stock outstanding as follows. 6% Cumulative preferred stock, $100
Assuming a 50% tax rate, compute the earnings per share data that should appear on the financial statements of Cheyenne Indus
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Answer #1

Solution:
On January 1 2017 Cheyenne industries

Income statement for the year ended December 31, 2017

Income from continuing operations 1.08
Discontinued operation gain net of tax 0.18
Net income / (loss) 1.26

Working :

Pref dividend = $1,080,000 * 6%

                      = $64,800

Weighted average shares:

Beginning ( 194,000 * 12/12 ) 194,000
April 1 , 2017(51,600 * 9/12) 38,700
July 1 , 2017(78,000 * 6/12) 3,900
Oct 1 ,2017(31,200 * 3/12) 7,800
Total 244,400

Income from continuing operation = $ 330,000 - $ 64,800 / 244,400 = 1.08

Discontinued operation gain = $91,200 *(1-50%)

                                             = $45,600 / 244,400 =0.18

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