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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

EPS

Pacific Gas and Electric Company is a large gas and electric utility operating in northern and centrai California. Three recent years of financial data for Pacific Gas and Electric Company are as follows:

    Fiscal Years Ended (in millions)  
  Year 3 Year 2 Year 1
Net income $888 $1,450 $828
Preferred dividends $14 $14 $14
Average number of common shares outstanding 484 468 444
  1. a. Determine the earnings per share for fiscal Year 3, Year 2, and Year 1. Round to the nearest cent.
  2. b. Evaluate the growth in earnings per share for the three years in comparison to the growth in net income for the three years.

(a)

To determine

Earnings per share:

Earnings per share represent the amount of income earned per share of outstanding common stock in a period. This ratio is used for analyzing the profitability of company’s stockholders’.

The following formula can be used to calculate earnings per share:

Earnings per shareNet income(loss) – Preferred dividendsAverage number of common shares outstanding

To determine: The earnings per share of Company P for Year 3, Year 2, and Year 1.

Explanation

Determine the earnings per share of Company P for Year 3, Year 2, and Year 1.

Earnings per share for Year 3Net income – Preferred dividendsAverage number of common shares outstanding=$888 –$14484 shares$1.81per share

Earnings per share for Year 2Net income – Preferred dividendsAverage number of common shares outstanding

(b)

To determine

To evaluate: The growth in earnings per share for 3 years in comparison to the growth in net income for the 3 years.

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