Financial statement data for the years ended December 31 for Dovetail Corporation are shown below.

Financial statement data for the years ended December 31 for Dovetail Corporation are shown below.









2014 2013
Net income $448,750 $376,000
Preferred dividends $40,000 $40,000
Average number of common shares outstanding 75,000 shares 60,000 shares


a. Determine the earnings per share for 2014 and 2013.
b. Does the change in the earnings per share from 2013 to 2014 indicate a favorable or an unfavorable trend?


Answer:




















a. 2014: Earnings per Share = Avg. Number of Common Shares Outstanding
$448,750 – $40,000 = 75,000 shares
$408,750 = 75,000 shares
= $5.45
2013: Earnings per Share = Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$376,000 – $40,000 = 60,000 shares
$336,000 = 60,000 shares
= $5.60
b. The decrease in the earnings per share from $5.60 to $5.45 indicates an
unfavorable trend in the company’s profitability.