On December 31, 2020, Dow Steel Corporation had 800,000 shares of common stock and 320,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $600,000 and $89,000 to common and preferred shareholders, respectively, on December 15, 2021. On February 28, 2021, Dow sold 75,000 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 $3,100,000. 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 Options Granted (adjusted for the stock dividend) Dow's basic Dow's diluted 27,000 22,000 25,500 The market price of the common stock averaged $54 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.) Share Price $46 $55 $54 Numerator I Denominator 1 Earnings per share
On December 31, 2020, Dow Steel Corporation had 800,000 shares of common stock and 320,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $600,000 and $89,000 to common and preferred shareholders, respectively, on December 15, 2021. On February 28, 2021, Dow sold 75,000 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 $3,100,000. 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 Options Granted (adjusted for the stock dividend) Dow's basic Dow's diluted 27,000 22,000 25,500 The market price of the common stock averaged $54 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.) Share Price $46 $55 $54 Numerator I Denominator 1 Earnings per share
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 800,000 shares of common stock and 320,000 shares of 8%, noncumulative,
nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends
of $600,000 and $89,000 to common and preferred shareholders, respectively, on December 15, 2021.
On February 28, 2021, Dow sold 75,000 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 $3,100,000. 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
Options Granted
(adjusted for the stock dividend)
Dow's basic
Dow's diluted
27,000
22,000
25,500
The market price of the common stock averaged $54 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.)
Numerator / Denominator =
1
1
=
Share Price
$46
$55
$54
=
Earnings per share
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