On january 1, 2016, tonge industries had outstanding 440,000 common shares (par $1) that originally sold for

Numerator (Basic EPS) : Net income = $650,000; Preferred dividends = $40,000 [ (10% x $100) x 4,000]. Because the preferred stock is cumulative, dividends are included whether or not paid

Denominator (Basic EPS) : Weighted average # shares common stock outstanding

1/1 - 12/31 440,000 x (12/12) = 440,000

10/1 - 12/31 16,000 x (3/12) = 4,000

Weighted average # shares 444,000

Basic EPS = ($650,000 - $40,000) : 444,000 = $1.37