Choice "A" is correct. $2.45 earnings per share.

Note: Since the preferred stock dividends are cumulative, when they are declared or paid is not relevant.Choice "d" is incorrect. This answer is calculated by incorrectly subtracting the $16,000 preferred dividend paid in Year 2. When preferred stock is cumulative, the dividend accumulated during the period must be subtracted to calculate basic earnings per share.
Choice "b" is incorrect. This amount is calculated by incorrectly subtracting preferred dividends of $4,000. This amount is not supported by the question facts.
Choice "c" is incorrect. This amount is equal to net income divided by the average common shares outstanding. When calculating basic earnings per share, preferred dividends accumulated during the period on cumulative preferred stock or preferred dividends declared during the period on noncumulative preferred stock must be subtracted from net income to calculate the income available to common shareholders, which is then divided by the average common shares outstanding.