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

For a recent year, OfficeMax and Staples are two companies competing in the retail office supply business. OfficeMax had a net income

For a recent year, OfficeMax and Staples are two companies competing in the retail office supply business. OfficeMax had a net income of $71,155,000, while Staples had a net income of $881,948,000. OfficeMax had preferred stock of $30,901,000 with preferred dividends of $2,527,000. Staples had no preferred stock. The average outstanding common shares for each company were as follows:









Average Number of
Common Shares Outstanding
OfficeMax 84,908,000
Staples 715,596,000




a. Determine the earnings per share for each company. Round to the nearest cent.
b. Evaluate the relative profitability of the two companies.


Answer:















a. OfficeMax:
Earnings per Share =
Earnings per Share =
Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$71,155,000 – $2,527,000
84,908,000 shares
= $0.81 per share
Staples:
Earnings per Share = Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
Earnings per Share = $881,948,000
715,596,000 shares
= $1.23 per share




b. Staples’ net income of $881,948,000 is much greater than OfficeMax’s net income of $71,155,0000. This is because Staples is a much larger business than OfficeMax. Staples also has over 8 times more shares of common stock outstanding than does OfficeMax. Regardless of these size differences, however, earnings per share can be used to compare their relative earnings. As shown above, Staples has a better earnings per share of $1.23 than does OfficeMax, which has earnings per share of $0.81.