# Accounting

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Samuels, Inc. reported net income for 2011 is \$105,000. During 2011 the company had 5,000 shares of \$100 par, 5% preferred stock and 20,000 of \$5 par common stock outstanding. Samuelsâ€™ earnings per share for 2011 is

A.\$4.00

B.\$5.25

C.\$6.50

D.\$5.00

• Accounting -

Step 1: Determine amount of dividends that preferred shareholders are entitled to:
5000*100*5% = 25,000
Step 2: Determine amount of earnings left over for common shareholders after the payment of preferred dividends:
105,000-25,000 = 80,000.
Step 3: Use the EPS formula to determine EPS:
EPS = Earnings available for common shareholders/common shares outstanding
80,000/20,000 = \$4.00

Note: Another way of writing the EPS formula is as follows:
(Net income - preferred dividends)/average outstanding shares.

• Accounting -

5.25

• Accounting -

4.00

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