On January 1, 2009, Farnsworth Company had 1,000,000 shares of common stock and 100,000 shares of $8

Question:

On January 1, 2009, Farnsworth Company had 1,000,000 shares of common stock and 100,000 shares of $8 cumulative preferred stock issued and outstanding. A principal goal of Farnsworth's management is to maintain or increase EPS.

On January 1, 2010, Farnsworth Company retired 50,000 shares of the preferred stock with excess cash and additional funds provided from the sale of a subsidiary.

At the beginning of 2011, the company borrowed $5,000,000 at 10% and used the proceeds to retire 200,000 shares of common stock. Operating income, before interest and income taxes (income tax rate is 30%), is as follows:

Did Farnsworth Company maintain its EPS even though income declined? What was the impact of the preferred and common stock transactions onEPS?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...