Range Energy Corp.’s financial statements for the current year ended December 31, 2014, have been completed and submitted to you for review. The equity account balances a year ago, at December 31, 2013, are as follows:
The only share transactions during 2014 were the declaration and distribution of a 24,000 common share dividend on July 1 and the issuance of 12,000 common shares for cash on October 31. The company’s 2014 net income was $620,880. A cash dividend on the preferred shares was declared on December 1, but was not paid as of December 31. Earnings per share for 2014 were calculated as follows:
Required 1. Explain what is wrong with the earnings per share calculation, indicating what corrections should be made to both the numerator and the denominator. Round calculations to two decimal places. 2. Explain how your answer to requirement 1 would be different if there had not been a cash dividend declaration to preferred shares and if the share dividend had taken place on January 2,2014.