Question

# On December 31, 2005, Merlin Company had outstanding 400,000 shares of common stock and 40,000 shares...

 On December 31, 2005, Merlin Company had outstanding 400,000 shares of common stock and 40,000 shares of 8% cumulative preferred stock (par \$10). On February 28, 2006, Merlin issued an additional 36,000 shares of common stock. On September 1, 2006, 9,000 shares were retired. Net income was \$900,000. A 10% stock dividend was declared and distributed on July 1, 2006 What is the basic EPS for the year ended December 31, 2006 for Merlin Company?

Weighted average shares = (400000*1.1*2/12)+(436000*1.1*4/12)+(436000*1.1*2/12) +(470600*4/12) = 470000

Preferred dividend = 40000*10*8% = 32000

EPS = (Net income-Preferred dividend)/Share outstanding = (900000-32000)/470000 = 1.85 per share

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