Party, Inc. has no preferred stock outstanding. The company had 40,000 shares of common stock outstanding on January 1, 2019 and issued 12,000 additional shares on May 1.
If Party's net income was $200,000, the company should report earnings per share of (to the nearest cent):
A) $3.85
B) $4.44
C) $4.17
D) $5.24

Question

Quizplus · Accepted Answer

To calculate the earnings per share (EPS), we need to determine the weighted average number of shares outstanding during the year. From January 1 to April 30, there were 40,000 shares outstanding. On May 1, an additional 12,000 shares were issued, making it 52,000 shares for the remaining 8 months (May through December).The weighted average shares are calculated as follows:$$ \text{Weighted shares} = (40,000 \times \frac{4}{12}) + (52,000 \times \frac{8}{12}) $$$$ \text{Weighted shares} = (13,333.33) + (34,666.67) $$$$ \text{Weighted shares} = 48,000 $$Next, calculate the EPS:$$ \text{EPS} = \frac{\text{Net Income}}{\text{Weighted Average Shares}} $$$$ \text{EPS} = \frac{200,000}{48,000} $$$$ \text{EPS} = 4.1667 $$Rounded to the nearest cent, the EPS is $4.17.