The Thomas Company's net income for the year ended December 31 was $30,000. During the year, Thomas declared and paid $3,000 in cash dividends on preferred stock and $5,250 in cash dividends on common stock. At December 31, 36,000 shares of common stock were outstanding, 30,000 of which had been issued and outstanding throughout the year and 6,000 of which were issued on July 1. There were no other common stock transactions during the year, and there is no potential dilution of earnings per share. What should be the year's basic earnings per common share of Thomas, rounded to the nearest penny?
A) $0.66
B) $0.75
C) $0.82
D) $0.91

Question

Quizplus · Accepted Answer

Basic earnings per common share can be calculated as net income minus preferred dividends, divided by the weighted average number of common shares outstanding.

Net income - preferred dividends = $30,000 - $3,000 = $27,000

Weighted average number of common shares outstanding = (30,000 shares x 12 months) + (6,000 shares x 6 months) = 372,000 shares

Basic earnings per common share = $27,000 ÷ 372,000 shares = $0.0727 per share

Rounded to the nearest penny, the basic earnings per common share is $0.82 per share. Therefore, the best choice is C.

The Thomas Company's Net Income for the Year Ended December