I am confused on how to calculate the earnings per share and the common dividend per share as well as figure out what the increased retained earnings for the year.

The problem states that the company had an operating profit of $210,000. Interest expense for the year was $30,000; preferred dividends paid were $24,700; and common dividends paid were $36,000. The tax was $59,300. The firm has 16,000 shares of common stock outstanding.

ChaliceHolder

Operating profit is revenue, Interest expense is an income statement item, preferred dividends are paid before common stock dividends, the taxes are paid before dividends, and dividends come out of retained earnings. Make the necessary deductions and then calculate the per share amount of the revenue.

morgaine300

The income statement is set up like this:

Revenues
-Operating Expenses
Net Income from Operations
- Interest Expense
Income before Taxes
- Tax Expense
Net Income

The problem is not giving you revenues and operating expenses separately. They're just jumping you straight to net income from operations (what they're calling operating profit.) (Oh, and operating profit is not revenue.) You've got the numbers you need for this, so it's a simple matter of doing a couple of subtractions to get to net income.

"Earnings per share" is referring to that net income. The total doesn't have much meaning to the shareholders, because it all depends on how many shares there are to divide it among. That is, if you had $50,000 of net income and only one share, then that's $50,000 for one share. But if you had 50,000 shares, that's only $1 per each share. So the shareholders want to know how it divides into an amount per share.

Any time you want to know something per something else, you divide the first something by the second something. So earnings per share is divided, in that order. This division always works. (It's no different than paying $1 for a dozen eggs and wanting to know what that is per egg: $1 divided by 12 eggs. Always works, regardless of subject.)

You can do the same thing to find common dividends per share. There's that "per" again. Just note that it says common dividends per share, meaning the preferred dividends aren't relevant to this.

As for retained earnings, three things affect it: revenues, expenses and dividends. Although generally the revenues less expenses is already put together on the income statement and netted out as net income.

In other words: beginning retained earnings + net income - dividends = ending retained earnings.

See if you can work these out. If you want to post your answers, someone can check them for you.

Most of the above is stuff you need to get memorized. i.e. what affects retained earnings and the basic setup of a corporate income statement.