Detailed Answer
Answer (B) is correct. Using known relationships, Dongata’s outstanding common stock can be determined as follows: Price-earnings ratio = Market price ÷ Earnings per share 8 = $56 per share ÷ Earnings per share Earnings per share = $56 per share ÷ 8 = 7 Net income 3,288,000 Less: dividends on preferred stock (488,000
Income available to common shareholders 2,800,000
Earnings per share = Income available to common shareholders ÷ Common shares outstanding 7 = $2,800,000 ÷ Common shares outstanding Common shares outstanding = $2,800,000 ÷ $7 = 400,000