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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 Black Bull Inc. follow:

  20Y6 20Y5
Net income $2,485,700 $1,538,000
Preferred dividends $50,000 $50,000
Average number of common shares outstanding 115,000 shares 80,000 shares
  1. a. Determine the earnings per share for 20Y6 and 20Y5.
  2. b. Does the change in the earnings per share from 20Y5 to 20Y6 indicate a favorable 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 Incorporation BB for the year ended December 31, 20Y6 and 20Y5.

Explanation

Determine the earnings per share of Incorporation BB for the year ended December 31, 20Y6 and 20Y5.

Earnings per share forthe year ended 20Y6}Net income – Preferred dividendsAverage number of common shares outstanding=$2,485,700 –$50,000115,000 shares=$2,435,700115,000 shares$21

(b)

To determine

To identify: Whether the change in the earnings per share of Incorporation BB from 20Y6 to 20Y5 indicates a favorable or unfavorable trend.

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