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Q: Financial Reporting Question ( Answered 5 out of 5 stars,   0 Comments )
Subject: Financial Reporting Question
Category: Business and Money > Accounting
Asked by: aproc84114-ga
List Price: $10.00
Posted: 01 Apr 2005 14:14 PST
Expires: 01 May 2005 15:14 PDT
Question ID: 503793
A corp had net income reported for 2004 of $880,000.  During 2004
dividends of $120,000 were declared on preferred stock and $200,000
were declared on common stock.  There were no changes in the 200,000
shares of common stock or the 40,000 shares of preferred stock
outstanding in 2004.

Calculated the Earnings per share..
Subject: Re: Financial Reporting Question
Answered By: richard-ga on 01 Apr 2005 14:40 PST
Rated:5 out of 5 stars
Hello and thank you for your question.

Earnings per share are actually "earnings per common share." Preferred
stock dividends reduce earnings per [common] share, but common stock
dividends don't.

So the earnings per share is (880,000 - 120,000)/200,000  =  $3.80

Simplifying EPS

Summary of Statement No. 128 Earnings per Share (Issued 2/97)
"Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period"

A current controversy is in what circumstances securities convertible
into common shares need to be included in the denominator, but your
question does not raise that issue.

Search terms used:
"Earnings Per Share" FASB
FASB Statement 128

Thanks again for letting us help.

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