Franklin Corporation had 100 shares of common stock issued and outstanding at December 31, 2010. On July 1, 2011, Franklin issued a 10 percent stock dividend. Unexercised stock options to purchase 20 shares of common stock (adjusted for the 2011 stock dividend) at $20 per share were outstanding at the beginning and end of 2011. The average market price of Franklin's common stock (which was not affected by the stock dividend) was $25 per share during 2011. The ending market price was $40. Net income for the year ended December 31, 2011, was $2,200.
What was Franklin's 2011 basic earnings per share, rounded to the nearest cent?
A) $19.30
B) $20.00
C) $20.20
D) $20.96

Question

Quizplus · Accepted Answer

To calculate basic earnings per share (EPS), divide net income by the weighted average number of common shares outstanding. After the 10% stock dividend, Franklin had 110 shares (100 original + 10% of 100). Net income is $2,200. Basic EPS = $2,200 / 110 = $20.00.

Franklin Corporation Had 100 Shares of Common Stock Issued and Outstanding