Jackson,Inc.had 360,000 shares of common stock outstanding on January 1,2010 and issued 60,000 additional shares on July 1,2010.There was no preferred stock.If net income for the year ended December 31,2010 was $1,072,500,the earnings per share were:

Question

Quizplus · Accepted Answer

To calculate the earnings per share, we need to divide the net income by the weighted average number of common shares outstanding during the period.
Weighted average number of common shares outstanding =
[(Number of shares outstanding on Jan 1) x (Months in the year)] + [(Number of shares issued on Jul 1) x (Months remaining in the year)]
= [(360,000 x 12) + (60,000 x 6)] / 12 
= (4,320,000 + 360,000) / 12 = 400,000

Earnings per share = Net income / Weighted average number of common shares outstanding
= $1,072,500 / 400,000 = $2.68

Therefore, the earnings per share are $2.75, closest to option C) $2.75.