On December 31, 2020, Dow Steel Corporation had 680,000 shares of common stock and 308,000 shares of 8%, noncumulative,...
On December 31, 2020, Dow Steel Corporation had 680,000 shares
of common stock and 308,000 shares of 8%, noncumulative,
nonconvertible preferred stock issued and outstanding. Dow issued a
4% common stock dividend on May 15 and paid cash dividends of
$480,000 and $77,000 to common and preferred shareholders,
respectively, on December 15, 2021.
On February 28, 2021, Dow sold 54,000 common shares. In keeping
with its long-term share repurchase plan, 4,000 shares were retired
on July 1. Dow's net income for the year ended December 31, 2021,
was $2,500,000. The income tax rate is 25%.
As part of an incentive compensation plan, Dow granted incentive
stock options to division managers at December 31 of the current
and each of the previous two years. Each option permits its holder
to buy one share of common stock at an exercise price equal to
market value at the date of grant and can be exercised one year
from that date. Information concerning the number of options
granted and common share prices follows:
| Options Granted | ||||||
| Date Granted | (adjusted for the stock dividend) | Share Price | ||||
| December 31, 2019 | 15,000 | $ | 16 | |||
| December 31, 2020 | 10,000 | $ | 25 | |||
| December 31, 2021 | 13,500 | $ | 24 | |||
The market price of the common stock averaged $24 per share during
2021.
Required:
Compute Dow's earnings per share for the year ended December 31,
2021. (Do not round intermediate calculations. Enter your
answers in thousands. Round "Earnings per share" answers to 2
decimal places.)
Homework Answers
Computation of earnings per share is:
Earnings per share = (Net income - Preferred dividend) / Number of weighted shares
= ($2,500,000 - $77,000) / 752,000
= $2,423,000 / 752,000
= 3.22
Hence, the earnings per share is 3.22
Working Notes:
1.
Computation of common shares on January 1 to December 31 is:
Common shares on January 1 to December 31 = Common shares * (1 + Percentage of common dividend) * (Number of months from January 1 to December 31 / Total Number of months in a year)
= 680,000 * (1 + 0.04) * (12/12)
= 680,000 * 1.04 * 1
= 707,200
Hence, the common shares on January 1 to December 31 is 707,200.
2.
Computation of common shares on February 28 to December 31 is:
Common shares on February 28 to December 31 = Common shares * (1 + Percentage of common dividend) * (Number of months from February 28 to December 31 / Total Number of months in a year)
= 54,000 * (1 + 0.04) * (10/12)
= 54,000 * 1.04 * (10/12)
= 46,800
Hence, the common shares on February 28 to December 31 is 46,800.
3.
Computation of number of repurchased shares on July 1 to December 31 is:
Number of repurchased shares on July 1 to December 31 = Number of repurchased shares * (Number of months from July 1 to December 31 / Total Number of months in a year)
= 4,000 * (6/12)
= 2,000
Hence, the number of repurchased shares on July 1 to December 31 is 2,000.
4.
Computation of number of weighted shares is:
Number of weighted shares = Common shares on January 1 to December 31 + Common shares on February 28 to December 31 - Number of repurchased shares on July 1 to December 31
= 707,200 + 46,800 - 2,000
= 752,000
Hence, the number of weighted shares is 752,000.
Add Answer to:
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of common stock and 34,000 shares of 8%, noncumulative,
nonconvertible preferred stock issued and outstanding. Dow issued a
4% common stock dividend on May 15 and paid cash dividends of
$440,000 and $73,000 to common and preferred shareholders,
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with its long-term share repurchase plan, 6,000 shares were retired
on July 1. Dow's net income...
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On December 31, 2017, 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, 2018.
On February 28, 2018, Dow sold 64,000 common shares. Also, as a
part of a 2017 agreement for the acquisition of Merrill Cable
Company, another 26,000 shares...
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