EPS
Malen Arts, Inc., had earnings of $133,750 for 2012. The company had 25,000 shares of common stock outstanding during the year. In addition, the company issued 10,000 shares of $100 par value preferred stock on January 3, 2012. The preferred stock has a dividend of $4 per share. There were no transactions in either common or preferred stock during 2012.
Determine the basic earnings per share for Malen Arts. Round answer to the nearest whole cent.
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To calculate the basic earnings per share (EPS), you need to divide the earnings available to common shareholders by the weighted average number of common shares outstanding during the year.
First, calculate the weighted average number of common shares outstanding during the year. Since there were no transactions in common stock during 2012, the number of common shares outstanding remains constant at 25,000 throughout the year.
Next, calculate the earnings available to common shareholders. This can be determined by subtracting the preferred dividends from the total earnings. The preferred dividends can be calculated by multiplying the number of preferred shares (10,000) by the dividend per share ($4).
Preferred Dividends = Number of preferred shares * Dividend per share
Preferred Dividends = 10,000 * $4 = $40,000
Earnings Available to Common Shareholders = Total Earnings - Preferred Dividends
Earnings Available to Common Shareholders = $133,750 - $40,000 = $93,750
Now, divide the earnings available to common shareholders by the weighted average number of common shares outstanding to calculate the basic EPS.
Basic EPS = Earnings Available to Common Shareholders / Weighted Average Number of Common Shares Outstanding
In this case, the weighted average number of common shares outstanding is 25,000 throughout the year.
Basic EPS = $93,750 / 25,000
Dividing these numbers, we get:
Basic EPS = $3.75
Therefore, the basic earnings per share for Malen Arts is $3.75.