P 19–12 EPS; nonconvertible preferred stock; treasury shares;shares sold; stock dividend; options LO19–4 through...

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P 19–12 EPS; nonconvertible preferred stock; treasury shares;shares sold; stock dividend; options LO19–4 through LO19–8, LO19–10(Note: This is a variation of P19–12, modified to include stockoptions.) On December 31, 2015, Dow Steel Corporation had 600,000shares of common stock and 300,000 shares of 8%, noncumulative,nonconvertible preferred stock issued and outstanding. Dow issued a4% common stock dividend on May 15 and paid cash dividends of$400,000 and $75,000 to common and preferred shareholders,respectively, on December 15, 2016. On February 28, 2016, Dow sold60,000 common shares. In keeping with its long-term sharerepurchase plan, 2,000 shares were retired on July 1. Dow’s netincome for the year ended December 31, 2016, was $2,100,000. Theincome tax rate is 40%. As part of an incentive compensation plan,Dow granted incentive stock options to division managers atDecember 31 of the current and each of the previous two years. Eachoption permits its holder to buy one share of common stock at anexercise price equal to market value at the date of grant and canbe exercised one year from that date. Information concerning thenumber of options granted and common share prices follows: Themarket price of the common stock averaged $32 per share during2016.
Date Granted Options Granted Share Price
(Adjusted for the stock dividend)
December 31, 2014 8,000 $24
December 31, 2015 3,000 $33
December 31, 2016 6,500 $32
Required: Compute Dow’s earnings per share for the year endedDecember 31, 2016.

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Basic Earning per Share Basic EPS Net Income Preferred Dividend Weighted Average Shares Outstanding Weighted Average shares Outstanding in thousands Weighted Average shares Outstanding Date Number of Shares Stock Dividend Total Shares Weights Number of shares x Weights 1116 600 24 See Answer

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In: AccountingP 19–12 EPS; nonconvertible preferred stock; treasury shares;shares sold; stock dividend; options LO19–4 through LO19–8,...P 19–12 EPS; nonconvertible preferred stock; treasury shares;shares sold; stock dividend; options LO19–4 through LO19–8, LO19–10(Note: This is a variation of P19–12, modified to include stockoptions.) On December 31, 2015, Dow Steel Corporation had 600,000shares of common stock and 300,000 shares of 8%, noncumulative,nonconvertible preferred stock issued and outstanding. Dow issued a4% common stock dividend on May 15 and paid cash dividends of$400,000 and $75,000 to common and preferred shareholders,respectively, on December 15, 2016. On February 28, 2016, Dow sold60,000 common shares. In keeping with its long-term sharerepurchase plan, 2,000 shares were retired on July 1. Dow’s netincome for the year ended December 31, 2016, was $2,100,000. Theincome tax rate is 40%. As part of an incentive compensation plan,Dow granted incentive stock options to division managers atDecember 31 of the current and each of the previous two years. Eachoption permits its holder to buy one share of common stock at anexercise price equal to market value at the date of grant and canbe exercised one year from that date. Information concerning thenumber of options granted and common share prices follows: Themarket price of the common stock averaged $32 per share during2016.Date Granted Options Granted Share Price(Adjusted for the stock dividend)December 31, 2014 8,000 $24December 31, 2015 3,000 $33December 31, 2016 6,500 $32Required: Compute Dow’s earnings per share for the year endedDecember 31, 2016.