Question

Question: (Earnings per Share) The stockholders’ equity section of Hendly Corporation appears below as of December 31, 2017.

8% preferred stock, \(50 par value, authorized

100,000 shares, outstanding 90,000 shares \)4,500,000

Common stock, \(1.00 par, authorized and issued 10 million shares 10,000,000

Additional paid-in capital 20,500,000

Retained earnings \)134,000,000

Net income 33,000,000167,000,000

\(202,000,000

Net income for 2017 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of \)18,000,000 (before tax) as a result of a non-recurring major casualty. Preferred stock dividends of \(360,000 were declared and paid in 2017. Dividends of \)1,000,000 were declared and paid to common stockholders in 2017.

Instructions

Compute earnings per share data as it should appear on the income statement of Hendly Corporation.

Short answer

The earnings per share of the company is $3.26.

Step-by-step solution

Step 1:Meaning of Earnings Per Share

The earnings per share denote the monetary per-share earnings on the outstanding common stock of a company. It is obtained by dividing the net income by the outstanding number of shares.

Computation of earnings per share

Computation of Earnings per share
Net Income after tax	$33,000,000
Net income before tax (33,000,000/66%)	50,000,000
Add: Major Casualty Loss	18,000,000
Income from operations	68,000,000
Income Tax (68,000,000X34%)	23,120,000
Income before extraordinary item	44,880,000
Extraordinary item:
Casualty Loss	$18,000,000
Less: Applicable income tax reduction	6,120,000
Net income	$33,000,000
Less: Provision for preferred dividends	360,000
Income available for common shareholders	$32,640,000
Common Shares	10,000,000
Earnings per share (32,640,000/10,000,000)	$3.26

Presenting Earnings per share on the Income Statement of Hendly Corporation

Income Statement presentation per share of common stock
Income before extraordinary item	$4.45
Extraordinary item	(1.19)
Net income	$3.26