Hello,

There is 8% cumulative preferred stock, $50 par value authorized 100,000 shares with 90,000 o/s shares... 4,500,000
Common stock $1.00 par, authorized and issued 10 million shares... 10,000,000
Additional paid in capital of.. . 20,500,000
Retained earnings... $134,000,000
Net income... $33,000,000... 167,000,000

$202,000,000
Net income reflects tax of 34%. Included in the net income figure is a loss of $18,000,000 (before tax) as a result of a major casualty.

I am to compute the EPS data as it should appear on the income statement.

So I figure that I really just have to be concerned with the fact that my preferred shares must be deducted leaving 28,500,000 available for c/s shareholders and divide that by 10,000,000 giving an EPS of $2.85.

But, this loss thing... I assume then that it's about how I present it??

I.E

Income before extraordinary items 44,880,000
Extraordinary item 18,000,000
Less applicable tax (6,120,000) (11,880,000)
Net income 33,000,000

And show my EPS in the same way?

Per share of common stock

income before extraodinary item 4.488
extraordinary loss, net of tax (1.188)
Preferred share (0.45)
Net income 2.85


Something seems off. Please help

Thanks

How did you come up with the 28,500,000. Please show your calculations of how you figured preferred stock.

Let's pretend for a moment that the 2.85 is correct. (Which it's not because of the preferred dividend issue above.) But you've sort of got the idea, but not quite there. You don't deduct the preferred per share thing like you did. You deduct the total preferred dividends from the income from extraordinary item. It has to be deducted in one of the above items for it to equal a correct total, which is why I say you've sort of got the idea -- you did subtract the preferred to make it work out. This just isn't quite how it's done.

Let's use some easy numbers:

10,000 income before loss
(1000) loss
9,000 net income

If I subtract preferred dividends from the 9000, I must subtract it from one of my other numbers or it won't total right. We subtract it from the top one -- i.e. your regular continuing operating income before any below-line items. Let's say preferred dividends are 2000:

10,000 - 2000 =... 8000
(1000)... (1000)
9000 - 2000 =... 7000

The purple is the numbers you'd use to do EPS.

[QUOTE=morgaine300]How did you come up with the 28,500,000. Please show your calculations of how you figured preferred stock.

I took net income of $33,000,000 and deducted $4,500,000 for the 90,000 o/s shares of preferred stock.


You deduct the total preferred dividends from the income from extraordinary item. It has to be deducted in one of the above items for it to equal a correct total

Do I say Less: Preferred Stock and deduct ??/




Thanks a lot...

You're subtracting the total par value of the stock out. You're supposed to be subtracting dividends. Dividends come out of net income, so the amount required to be paid to the preferred shareholders has to be taken out first, and the remainder belongs to the common shareholders. The 4,500,000 is how much was invested in the preferred stock. That's irrelevant to EPS. (That is what you'd subtract if you were doing equity per common share.) The 8% is their dividend requirement. So they are required to get a dividend at 8% of that.

You don't say anything about the preferred stock. You just deduct it.

For instance, on my prior example, if we had 10,000 shares of common stock I would do the following calculations:

10,000 - 2000 = 8000/10,000 shares = .80
(1000)/10,000 shares = (.10)
9000 - 2000 = 7000/10,000 shares = .70

Attached is the bottom portion of a statement showing how they wrote out the EPS.

Attached Images

 

Thanks a million -

I am doing an elective for my degree and the lecturer - poor soul - is an old fellow who seems quite confused at times so I am teaching myself and trying to keep the practice up.


Thanks again.

Regards,

Danielle