Question

Calculation of EPS and retained earnings Everdeen

Mining​, ​Inc., ended 2019 with net profits before taxes of $ 441,000. The company is subject to a

21% tax rate and must pay $ 62,200 in preferred stock dividends before distributing any earnings on the

167,000 shares of common stock currently outstanding.

A. Calculate​ Everdeen's 2019 earnings per share​ (EPS).

b. If the firm paid common stock dividends of$ 0.81

per​ share, how many dollars would go to retained​ earnings?

Answer 1

(a)- Everdeen's 2019 earnings per share​ (EPS).

Net Income = Net profits before taxes x (1 – Tax rate)

= $441,000 x (1 – 0.21)

= $441,000 x 0.79

= $348,390

Earnings per share (EPS) = [Net Income – Preferred dividends] / Number of common shares outstanding

= [$348,390 - $62,200] / 167,000 shares outstanding

= $286,190 / 167,000 shares outstanding

= $1.71 per share

(b)-Additions to retained earnings

Additions to retained earnings = Net Income after tax – Preferred dividends – Common dividends

= $348,390 - $62,200 – [167,000 shares x $0.81 per share]

= $348,390 - $62,200 – $135,270

= $150,920