# Did I calculate the earnings per share correct?

Income Statement
June 30
Sales............................................. ........ \$2,100,000
Costs of goods sold................................. 1,260,000
Gross margin.......................................... 840,000
Net operating income.............................. 180,000
Interest expense.................................... 30,000
Net income before taxes.......................... 150,000
Income taxes(30%)................................ 45,000
Net income............................................ . \$ 105,000

Balance Sheet June 30
Assets
Current assets:
Cash.............................................. ...... \$ 21,000
Accounts receivable, net.......................... 160,000
Merchandise inventory............................ 300,000
Prepaid expenses................................... 9,000
Total assets........................................... 490,000
Property and equipment, net................... 810,000
Total assets.......................................... 1,300,000

Liabilities and stockholder's Equity
Liabilities:
Current liabilities..................................\$ 200,000
Bonds payable, 10%............................. 300,00
Total liabilities......................................
Stockholders' equity:...........................
Common stock, \$5 per value................... \$100,000
Retained earnings.................................. 700,000
Total stockholders' equity........................ 800,000
Total liabilities and stockholders' equity.... 1,300,000

Additional information, corporation pid dividends of \$3.15 per share during the year. Company's common stock had a market price of \$63 per share on June 30, and there was no change in the number of outstanding shares of common stock during the fiscal year.

I used the formula:
Net income - preferred dividends/average number of common shares outstanding
Net income (105,000), since there was no preferred shares, no deductions from the net income. The next step was to divide by average # common shares outstanding(100,000), and I came up with \$1.05

\$105,000/\$100,000=\$1.05 (earnings per share)

Did I calculate this correctly?

 hamzashakaa Posts: 161, Reputation: 47 Junior Member #2 Nov 2, 2008, 01:21 AM
Actually you should divide the net income by 20,000 outstanding shares(\$100,000/\$5 PAR VALUE) but instead you divided the net income by the amount of outstanding stocks.
 nyota Posts: 7, Reputation: 1 New Member #3 Nov 2, 2008, 08:38 AM
Quote:
 Originally Posted by hamzashakaa Actually you should divide the net income by 20,000 outstanding shares(\$100,000/\$5 PAR VALUE) but instead you divided the net income by the amount of outstanding stocks.
Hamzashakaa,

Thank you.

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