Question

Kelley Company reports \(960,000 of net income for 2017 and declares \)120,000 of cash dividends on its preferred stock for 2017. At the end of 2017, the company had 400,000 weighted-average shares of common stock.

1. What amount of net income is available to common stockholders for 2017?

2. What is the company’s basic EPS for 2017? Round your answer to the nearest whole cent.

Short answer

1. Net income available to common stockholder for 2017 is $840,000
2. Earnings per share is $2.10

Step-by-step solution

Step-1 Computation of Net income

$\begin{array}{c}\mathbf{N}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{I}\mathbf{n}\mathbf{c}\mathbf{o}\mathbf{m}\mathbf{e}\mathbf{}\mathbf{A}\mathbf{v}\mathbf{a}\mathbf{i}\mathbf{l}\mathbf{a}\mathbf{b}\mathbf{l}\mathbf{e}\mathbf{}\mathbf{t}\mathbf{o}\mathbf{}\mathbf{C}\mathbf{o}\mathbf{m}\mathbf{m}\mathbf{o}\mathbf{n}\mathbf{}\mathbf{S}\mathbf{t}\mathbf{o}\mathbf{c}\mathbf{k}\mathbf{h}\mathbf{o}\mathbf{l}\mathbf{d}\mathbf{e}\mathbf{r}\mathbf{=}\mathbf{N}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{I}\mathbf{n}\mathbf{c}\mathbf{o}\mathbf{m}\mathbf{e}\mathbf{-}\mathbf{P}\mathbf{r}\mathbf{e}\mathbf{f}\mathbf{e}\mathbf{r}\mathbf{r}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{D}\mathbf{i}\mathbf{v}\mathbf{i}\mathbf{d}\mathbf{e}\mathbf{n}\mathbf{d}\\ \mathbf{=}\mathbf{\$}\mathbf{960}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{120}\mathbf{,}\mathbf{000}\\ \mathbf{=}\mathbf{\$}\mathbf{840}\mathbf{,}\mathbf{000}\end{array}$

Step-1 Formula for Earnings Per Share

$\begin{array}{c}\mathbf{Earnings}\mathbf{}\mathbf{Per}\mathbf{}\mathbf{Share}\mathbf{=}\frac{\mathbf{NetIncome}\mathbf{}\mathbf{Available}\mathbf{}\mathbf{to}\mathbf{}\mathbf{Common}\mathbf{}\mathbf{Stock}\mathbf{}\mathbf{holder}}{\mathbf{Weighted}\mathbf{}\mathbf{Average}\mathbf{}\mathbf{Share}\mathbf{}\mathbf{of}\mathbf{}\mathbf{CommonStock}}\\ \mathbf{=}\frac{\mathbf{\$}\mathbf{840}\mathbf{,}\mathbf{000}}{\mathbf{400}\mathbf{,}\mathbf{000}}\\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{.}\mathbf{10}\end{array}$