CPA Study Group
This problem states " The company paid ash dividend of $20,000 for preferred stock AND $10,000 for the common stock". But paid dividend for common stock was not included for this EPS calculation. Why? This question was asking for Basic EPS, and basic only account "common stock", so why $10,000 was not taken into the calculation for EPS??
BEPS is calculated as:
Net Income Available to Common Shareholders / Average-Weighted Common Shares
Dividends are a return of income to shareholders, not a deduction from net income so to calculate the numerator you only subtract dividends on preferred stock.