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# Earnings per share

At July 1, 2007, Peter Corporation had the following share capital:

\$2 Preferred shares, cumulative, 200,000 shares
authorized, 50,000 shares issued \$ 800,000
Common shares, 1,000,000 shares authorized, 100,000
shares issued 2,500,000
\$3,300,000
*The preferred dividends are 2 years in arrears.

On January 1, 2008, the board of directors declared and paid a 15% common stock dividend. On April 1, 2008, the company sold an additional 1,000,000 common shares for proceeds of \$5,680,000. The corporation earned \$985,000 during the year and paid \$160,000 in dividends.

Instructions
1. Calculate Peters Corporation's earnings per share for the year ended June 30, 2008, assuming the company paid \$160,000 in cash dividends.
2. Calculate Peters Corporation's earnings per share for the year ended June 30, 2008, assuming the company paid \$160,000 in cash dividends but there were no preferred dividends in arrears.
3. Calculate Peters Corporation's earnings per share for the year ended June 30, 2008, assuming the preferred dividends are noncumulative and \$50,000 in total cash dividends were paid during the year.

#### Solution Preview

First step is to calculate the weighted average number of common shares outstanding
July 1 shares 115,000 (restated for stock dividends)
Jan 1 shares with stock dividend 115,000
April 1 - additional shares issued = 1,000,000 (total 1,115,000)
Weighted average common shares = 115,000 X 6/12 (outstanding for 6 months) + 115,000 X 3/12 (outstanding for 3 months) + 1,115,000 X 3/12 (outstanding for 3 ...

#### Solution Summary

The solution explains the calculation of earnings per share under different assumptions

\$2.19