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ABC Co. had 120,000 shares of common stock outstanding at January 1. On April 1, it...

ABC Co. had 120,000 shares of common stock outstanding at January 1. On April 1, it issued 40,000 additional shares of common stock. Outstanding all years were 10,000 shares of nonconvertible preferred stock on which a dividend of $5 per share was declared during the year. Net income for the year was $480,000. What is the EPS for the year? The answer is $2.87. Why is that?

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Answer #1

--Requirement, as to why EPS is $ 2.87

A Net Income $480,000
B Preferred Dividend (10000 shares x $ 5) $50,000
C = A - B Net Income for common stockholders $430,000
Weighted average common stock outstanding:
120000 x 12/12 120000
40000 x 9/12 30000
D Total weighted avr common shares outstanding 150000
E = C/D EPS $2.87 Answer [$ 430000 / 150000 shares]
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