Wouldn't the calculation be NI 500,000 - Div Paid 20,000 [16,000 paid + 4,000 accumulated]. I assumed 16,000 would be 10,000/year *2 = 20,000 dividends on preferred stock for y1 & y2. and if the company paid 16,000, 4,000 dividends are accumulated on Preferred shares. But still I thought we have to deduct 500,000 - 20,000 = NI 480,000/200,000 = 2.4. available for common shares. I thought dividends paid or accumulated would be deducted from NI because the company paying the dividends pays from after tax earnings.
Ute Co. had the following capital structure during Year 1 and Year 2:
Preferred stock, $10 par, 4% cumulative, 25,000 shares issued and outstanding
Common stock, $5 par, 200,000 shares issued and outstanding
Ute reported net income of $500,000 for the year ended December 31, Year 2. Ute paid no preferred dividends during Year 1 and paid $16,000 in preferred dividends during Year 2. In its December 31, Year 2, income statement, what amount should Ute report as basic earnings per share?
Choice "d" is correct. $2.45 earnings per share.
Note: Since the preferred stock dividends are cumulative, when they are declared or paid is not relevant.