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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

Earnings per share

Financial statement data for the years ended December 31 for Dovetail Corporation follow:

  20Y3 20Y2
Net income $448,750 $376,000
Preferred dividends $40,000 $40,000
Average number of common shares outstanding 75,000 shares 60,000 shares
  1. a. Determine the earnings per share for 20Y3 and 20Y2.
  2. b. Does the change in the earnings per share from 20Y2 to 20Y3 indicate a favorable or unfavorable trend?

(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 Corporation D for the year ended December 31, 20Y3 and 20Y2.

Explanation

Determine the earnings per share of Corporation D for the year ended December 31, 20Y3 and 20Y2.

Earnings per share forthe year ended 20Y3}Net income – Preferred dividendsAverage number of common shares outstanding=$448,750 –$40,00075,000 shares=$408,75075,000 shares$5

(b)

To determine

To identify: Whether the change in the earnings per share of Corporation D from 20Y2 to 20Y3 indicates a favorable or unfavorable trend.

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