I am very confused when I am doing an excise of calculating EPS. The question said:
The company had following capital structure during Yr 1 and Yr 2:
Preferred stock, $10 Par, 4% cumulative, 25,000 shares issued and outstanding $250,000
Common stock $5 par, 200,000 shares issued and outstanding.
The company reported net income of $500,000 for the year ended Dec 31, Yr 2. The company paid no dividend in Yr 1, and paid $16,000 in preferred dividends in Yr 2. So, for Yr 2, what is the basic EPS?
my calculation is $500,000 - 4% * 250,000 * 2 (for Yr 1 and Yr 2) = $480,000 available to common stock holders
Then basic EPS = $480,000 / 200,000 = 2.40
But the answer to this question is 2.45. So it didn't count the $10,000 preferred dividend that accumulated but didn't paid out for Yr 1. Can anyone tell me why??
