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Tyler Co: Compute earnings per share for common considering preferred dividends

At December 31, Tyler Co. has $500,000. of $100 par value, 8% cumulative preferred stock outstanding and $2,000,000. of $10. par value common stock issued. Tyler's net income for the year is $1,000,000.

Compute earnings per share of common stock for the year under the following independent situations.

A. The dividend to preferred stockholders was declared, and there has been no change in the number of shares of common stock outstanding during the year.

B. The dividend to preferred stockholders was not declared, and 10,000 shares of common treasury stock were held throughout the year. The preferred stock is cumulative.

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Solution Preview

First understand the concept. When dividend is declared for preferred stock we have to pay it first from the net income before we can pay the common share holders.

If the preferred dividend is not declared, it gets accumulated (provided its CUMULATIVE preferred stock) for payment in some future date.

(A) Now, the equations are as follows:

Par value of ...

Solution Summary

The solution discloses all the calculations of EPS and dividends together with sufficient narrative to understand the concepts.