Choice "C" is correct. When a company has cumulative preferred stock, the preferred dividends deducted from net income to derive income available to common shareholders are equal to the dividends accumulated in the period, regardless of whether they have been declared. Given this, Jen Co.'s basic EPS is calculated as follows:¹ Accumulated preferred dividends$100 par x 10%$200,000Choice "b" is incorrect. The accumulated preferred dividends of $200,000 are subtracted from net income in the numerator to calculate EPS. The number of preferred shares should not be added to the denominator when determining the weighted average number of common shares outstanding.
Choice "d" is incorrect. The preferred dividends accumulated during the period must be deducted from net income when calculating basic EPS, regardless of whether the dividends have been declared.
Choice "a" is incorrect. The accumulated preferred dividends of $200,000 are subtracted from net income in the numerator to calculate EPS. The number of preferred shares should not be subtracted from the denominator when determining the weighted average number of common shares outstanding.