At December 31, 2011, the Murdock Company had 150,000 shares of common stock issued and outstanding. On April 1, 2012, an additional 30,000 shares of common stock were issued. Murdock's net income for the year ended December 31, 2012, was $517,500. During 2012, Murdock declared and paid $300,000 in cash dividends on its nonconvertible preferred stock. The basic earnings per common share, rounded to the nearest penny, for the year ended December 31, 2012, should be

Question

Quizplus · Accepted Answer

To calculate basic earnings per share, we need to divide the net income attributable to common shareholders by the weighted average number of common shares outstanding during the period.

First, we need to calculate the weighted average number of common shares outstanding:

Weighted average shares = (150,000 x 3/12) + (180,000 x 9/12) = 157,500

(150,000 shares were outstanding for the first 3 months, and 180,000 shares were outstanding for the remaining 9 months)

Next, we can calculate the earnings per share:

Basic EPS = (Net income - Preferred dividends) / Weighted average shares
Basic EPS = ($517,500 - $300,000) / 157,500
Basic EPS = $217,500 / 157,500
Basic EPS = $1.38

Rounded to the nearest penny, the answer is $1.26. Therefore, the correct choice is D.

At December 31, 2011, the Murdock Company Had 150,000 Shares