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Bubba Corporation has net income of $4,200,000. It has 100,000 outstanding shares of 8% preferred stock ($100 par value) and 400,000 shares of common stock ($10 par value).
What are the earnings per share of common stock?
Suggested Answer: A
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$8.50. Subtract the preferred dividend of $800,000 (100,000 x 8% x 100) from the net income. Divide the result of $3,400,000 ($4,200,000 - $800,000) by the 400,000 common shares to obtain $8.50.
13 comments · newest first
MA
Margurite
12 months ago
Totally agree, $6.00 makes sense!
IR
Irene
1 year ago
Wait, how do we know the preferred dividends are calculated correctly?
SE
Serina
1 year ago
I think it’s $6.00, seems right to me.
KI
Kiley
1 year ago
Gotta subtract the preferred dividends first!
BI
Billye
1 year ago
Net income is $4.2 million, and there are 400k common shares.
TE
Tegan
1 year ago
I’m a bit confused about the preferred stock part. Do we just multiply the par value by the dividend rate to find the total preferred dividends?
EM
Emerson
1 year ago
This question feels similar to one we practiced where we had to adjust net income for preferred stock. I hope I remember the formula correctly!
OM
Omega
1 year ago
I think we need to subtract the preferred dividends from the net income before calculating the EPS for common stock.
PE
Penney
1 year ago
I remember we calculated earnings per share in class, but I'm not sure how to account for the preferred dividends here.
TA
Tammy
1 year ago
Ah, I think I see the problem. The code is trying to use a variable that hasn't been declared. That would likely cause an error on one of the lines. I'll mark my answer accordingly.
LI
Linwood
1 year ago
Hmm, I'm a bit unsure about this one. There are a few different options presented, and I want to make sure I select the right ones. I'll need to carefully review the routing table and the command options.
DE
Devora
1 year ago
Okay, I've got this. The key is that the question is asking about reducing time and effort to create a product specification, so the answer has to be something that already exists and can be reused. That points to A - requirements.
NI
Nickolas
1 year ago
I think the answer is A. The SIP Server in standalone mode would be responsible for managing the persistent registrar data.