Question

At December 31, 2021 and 2020, P Co. had 50,000 shares of common stock and 5,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2021 or 2020. Net income for 2021 was $500,000. For 2021, basic earnings per common share amounted to:

Answer 1

Earning per for Common Share = $9.50

Step-by-step explanation:

Earning per Common Share = Earning Attributable to Common Shareholders / No. of Common Share

No. of Common Share = 50,000

Where Earning Attributable to Common Shareholders = Net Income - Dividend to Preferred Stock = $500,000 - (5,000 shares * 100 * 5%) = $475,000

Since the preferred stocks are cumulative, dividend to these stock will be deducted even if it is not declared.

Earning per for Common Share = $475,000 / 50,000 shares

Earning per for Common Share = $9.50.