Question

Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2010. No common stock was issued during 2011. On January 1, 2011, Didde issued 200,000 shares of nonconvertible preferred stock. During 2011, Didde declared and paid $100,000 cash dividends on the common stock and $80,000 on the preferred stock. Net income for the year ended December 31, 2011 was $620,000. What should be Didde's 2011 earnings per common share?

a. $2.07
b. $1.80
c. $1.73
d. $1.47

Answer 1

To calculate the earnings per common share, subtract the preferred stock dividend from the net income and divide it by the number of common shares outstanding.

Step-by-step explanation:

To calculate the earnings per common share, we need to consider the dividends paid on the preferred stock. Since the preferred stock dividend is subtracted from net income, the remaining amount is considered for the common stock. In this case, the net income is $620,000 and the preferred stock dividend is $80,000. Therefore, the earnings available for common stock is $620,000 - $80,000 = $540,000.

To find the earnings per common share, we divide the earnings available for common stock by the number of common shares outstanding. In this case, the number of common shares outstanding is 300,000. Therefore, the earnings per common share is $540,000 / 300,000 = $1.80.

Therefore, the correct answer is (b) $1.80.