A. The earnings per share is the income available for distribution to common shareholders divided by the number of common shares outstanding:(Net income - preferred dividends) / Number of common shares= ($250,000 - $50,000) / 50,00= $200,000 / 50,000= $4.00
B. This calculation fails to deduct the preferred share dividends from net income in the numerator and includes the number of all outstanding shares, common and preferred, in the denominator, as follows:Net income / Number of common and preferred shares= $250,000 / (50,000 + 25,000)= $250,000 / 75,000= $3.33The numerator of the ratio should be an adjusted net income, and the number of preferred shares should not be included in the denominator.
C. This answer results from including the number of all outstanding shares, common and preferred, in the denominator, as follows: (Net income - preferred dividends) / Number of common and preferred shares= ($250,000 - $50,000) / (50,000 + 25,000) = $200,000 / 75,000 = $2.67Earnings per share is earnings per common share, and the number of preferred shares should not be included in the denominator.
D. This calculation divides net income by the number of common shares, as follows:Net income / Number of common share= $250,000 / 50,00= $5.00The numerator of the ratio should be an adjusted net income.
