Chapter 14, Problem 14.5CP

1.

To determine

Earnings per share (EPS): It refers to the share of earnings earned by the shareholder on each owned. The formula to calculate the earnings per share is as follows:

$\begin{array}{l}\text{Earnings }\\ \text{per share}\end{array}\}\text{ = }\frac{\text{Net income – Preferred dividends}}{\text{Weighted average number of shares outstanding}}$

To Prepare: a table indicating the expected earnings per share on the common stock under each plan.

2(a)

To determine

To Discuss: the factors that should be considered in evaluating the two plans.

2 (b)

To determine

To Explain: the plan that offers greater benefit to the present stockholders