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1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Earnings Per Share (EPS)

Financial Accounting

14. Financial Statement Analysis

Ratios: Earnings Per Share (EPS)

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Multiple Choice

Tougher Company's current year income statement showed an EPS of $1.25 per share. If total common equity totaled $600,000 (40,000 common shares) and preferred dividends were $10,000 (10,000 preferred shares), what was net income during the period?

$50,000

$60,000

$62,500

$72,500

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Verified step by step guidance

Start by understanding the formula for Earnings Per Share (EPS): $ \text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Number of Common Shares}} $.

Given that EPS is $1.25, preferred dividends are $10,000, and there are 40,000 common shares, substitute these values into the EPS formula: $ 1.25 = \frac{\text{Net Income} - 10,000}{40,000} $.

Rearrange the equation to solve for Net Income: $ \text{Net Income} - 10,000 = 1.25 \times 40,000 $.

Calculate the right side of the equation: $ 1.25 \times 40,000 $ to find the total earnings available to common shareholders.

Add the preferred dividends back to the total earnings available to common shareholders to find the Net Income: $ \text{Net Income} = (1.25 \times 40,000) + 10,000 $.