# Kelley Company reports $960,000 of net income for 2015, and declares$120,000 of cash dividends...

## Question:

Kelley Company reports $960,000 of net income for 2015, and declares$120,000 of cash dividends on its preferred stock, for 2015. At the end of 2015, the company had 400,000 weighted-average shares of common stock. What amount of net income is available to common stockholders for 2015? What is the company's basic EPS for 2015?

## Earnings per Share:

Earnings Per Share (EPS) is a financial ratio used by investors. This ratio measures the income available per share of stock. To calculate basic EPS, the net income available to common stockholders (net income less preferred dividends) is divided by the weighted-average number of common shares. Generally investors prefer higher EPS figures.

## Answer and Explanation:

Net Income

Net income available to common stockholders is equal to net income less preferred dividends. Thus, net income available to common stockholders totals $840,000 ($960,000 - $120,000). Basic EPS Basic EPS is equal to net income available to common stockholders dividend by weighted average shares of common stock. Thus basic EPS equals 2.1 ($840,000 / 400,000 shares)