On december 31, 2017, dow steel corporation had 770,000 shares of common stock and 47,000 shares of 9%, noncumulative, nonconvertible preferred stock issued and outstanding. dow issued a 5% common stock dividend on may 15 and paid cash dividends of $570,000 and $86,000 to common and preferred shareholders, respectively, on december 15, 2018. on february 28, 2018, dow sold 68,000 common shares. in keeping with its long-term share repurchase plan, 4,000 shares were retired on july 1. dow's net income for the year ended december 31, 2018, was $2,950,000. the income tax rate is 40%. required: compute dow's earnings per share for the year ended december 31, 2018.

EPS = 3.37

Explanation:

First step we will calculate the income after paying the preferred dividends

net income 2,950,000

86,000 preferred stock dividends

earnings for common stock: 2,864,000

Then we calcualte the average shares outstanding

Feb 28th 68,000 sold shares

May 15th 770,000 x 5% = 38,500 new shares

July 1st 4,000 shares retired

weighted average shares:

770,000 +68,000 x 10/12 + 38,500 x 7.5/12 - 4,000 x 6/12  = 848729.1667

average shares 848,729

Earning per share

(net income - preferred stock) / weighted average shares outstanding

2,864,000 / 848,729 = 3,.744 = 3.37

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