On December 31, 2020, Dow Steel Corporation had 710,000 shares of common stock and 311,000 shares of 7%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $510,000 and $80,000 to common and preferred shareholders, respectively, on December 15, 2021. On February 28, 2021, Dow sold 63,000 common shares. In keeping with its long-term share repurchase plan, 4,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2021, was $2,650,000. The income tax rate is 25%. As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows: Date Granted December 31, 2019 Options Granted (adjusted for the stock dividend) 18,000 Share Price $28
On December 31, 2020, Dow Steel Corporation had 710,000 shares of common stock and 311,000 shares of 7%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $510,000 and $80,000 to common and preferred shareholders, respectively, on December 15, 2021. On February 28, 2021, Dow sold 63,000 common shares. In keeping with its long-term share repurchase plan, 4,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2021, was $2,650,000. The income tax rate is 25%. As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows: Date Granted December 31, 2019 Options Granted (adjusted for the stock dividend) 18,000 Share Price $28
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On December 31, 2020, Dow Steel Corporation had 710,000 shares of common stock and 311,000 shares of 7%, noncumulative,
nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends
of $510,000 and $80,000 to common and preferred shareholders, respectively, on December 15, 2021.
On February 28, 2021, Dow sold 63,000 common shares. In keeping with its long-term share repurchase plan, 4,000 shares were
retired on July 1. Dow's net income for the year ended December 31, 2021, was $2,650,000. The income tax rate is 25%.
As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current
and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to
market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted
and common share prices follows:
Date Granted
December 31, 2019
December 31, 2020
December 31, 2021
Dow's basic
Dow's diluted
Options Granted
(adjusted for the stock dividend)
$
$
The market price of the common stock averaged $36 per share during 2021.
Required:
Compute Dow's earnings per share for the year ended December 31, 2021. (Do not round intermediate calculations. Enter your
answers in thousands. Round "Earnings per share" answers to 2 decimal places.)
18,000
13,000
16,500
Numerator
Answer is complete but not entirely correct.
2,570
2,570
Share Price
$28
$37
$36
Denominator
791✔ =
793 X =
Earnings per
share
$
$
3.25✔
3.25 x
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