Appendix EX 17-23 Earnings per share, extraordinary item

The net income reported on the income statement of Cutler Co. was $4,000,000. There were 500,000 shares of $10 par common stock and 100,000 shares of $2 preferred stock outstanding throughout the current year. The income statement included two extraordinary items: an $800,000 gain from condemnation of land and a $400,000 loss arising from flood damage, both after applicable income tax. Determine the per-share figures for common stock for (a) income before extraordinary items and (b) net income.


Answer:

a. Earnings per share on income before extraordinary items:
Net income………………………………………………………………………… $4,000,000
Less gain on condemnation………………………………………………… (800,000)
Plus loss from flood damage………………………………………………… 400,000
Income before extraordinary items………………………………………… $3,600,000
Earnings Before Extraordinary Items
per Share on Common Stock =
Income Before Extraordinary Items
– Preferred Dividends
Shares of Common Stock Outstanding
$3,600,000 – $200,000 *
500,000 shares
* 100,000 shares × $2.00 per share
b. Earnings per Share on Common Stock
$4,000,000 – $200,000
500,000 shares
= $6.80 per share
= Net Income – Preferred Dividends
Shares of Common Stock Outstanding
= $7.60 per share