Junkyard Arts, Inc., had earnings of $316,000 for 2014. The company had 40,000 shares of common stock outstanding during the year

Junkyard Arts, Inc., had earnings of $316,000 for 2014. The company had 40,000 shares of common stock outstanding during the year. In addition, the company issued 15,000 shares of $50 par value preferred stock on January 9, 2014. The preferred stock has a  dividend of $1.60 per share. There were no transactions in either common or preferred stock during 2014.

Determine the basic earnings per share for Junkyard Arts.


Answer:









Earnings per Share = Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
Earnings per Share = $316,000 – ($1.60 × 15,000 shares)
40,000 shares
Earnings per Share = $7.30 per share