Answer (B) is correct . Using known relationships, Dongata’s outstanding common stock can be determined as follows: Price-earnings ratio = Market price ÷ Earnings per share 8 = $56 per share ÷ Earnings per share ? Earnings per share = $56 per share ÷ 8 = $7 Net income $3,288,000 Less:? dividends on preferred stock (488,000) Income available to common shareholders $2,800,000 Earnings per share = Income available to common shareholders ÷ Common shares outstanding $7 = $2,800,000 ÷ Common shares outstanding Common shares outstanding = $2,800,000 ÷ $7 = 400,000
Answer (A) is incorrect because Improperly dividing the income available to common shareholders by the price-earnings ratio (instead of earnings per share) results in 350,000.
Answer (C) is incorrect because Improperly dividing net income (instead of income available to common shareholders) by the price-earnings ratio (instead of earnings per share) results in 411,000 shares.
Answer (D) is incorrect because Improperly dividing net income (instead of income available to common shareholders) by earnings per share results in 469,714 shares.
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