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Assume there are 600,000 shares of common stock authorized by ABC Corporation. Of those, 500,000...

Question:

Assume there are 600,000 shares of common stock authorized by ABC Corporation. Of those, 500,000 shares have been issued. Later, 100,000 shares of the issued shares were repurchased by ABC Corporation and are currently held as Treasury Stock. Net Income for the year was $1,600,000. There are no preferred dividends. Calculate the earnings per share (eps).

Earnings Per Share:

To calculate the earnings per share, we simply divide the net income remaining after distributing the preferred dividend with the number of common shares outstanding. The outstanding shares are arrived at, after making adjustments to the issued shares, of the effects of treasury stock, stock dividend, etc.

Answer and Explanation:


Answer:

The earnings per share of ABC corporation are $4.

Explanation:

As per the data provided by ABC Corp:

  • Shares issued = 500,000 shares
  • Shares repurchased = 100,000 shares
  • Net income for the year = $1,600,000
  • Preferred dividends = $0

Computation:

  • Earnings per share = (Net income - Preferred dividend) / (Issued shares - Treasury stock)
  • Earnings per share = ($1,600,000 - $0) / (500,000 shares - 100,000 shares)
  • Earnings per share = $4

Learn more about this topic:

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How to Calculate Earnings Per Share: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 14
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