Charlotte Engineering reported net income of $400,000 for the year. It declared $30,000 in preferred dividends on December 23. It began the year with 100,000 common shares outstanding. On July 1, Charlotte declared a 5% common stock dividend. Compute the basic EPS for the year. (Round your answer to the nearest cent.)

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The correct answer is A.The basic EPS is calculated as net income divided by the weighted average number of common shares outstanding during the year. The weighted average number of common shares outstanding is calculated as the average of the number of shares outstanding at the beginning and end of the year, adjusted for any stock dividends or splits that occurred during the year.In this case, the net income is $400,000, the number of shares outstanding at the beginning of the year is 100,000, and the number of shares outstanding at the end of the year is 105,000 (100,000 + 5,000). The weighted average number of common shares outstanding is therefore 102,500 ((100,000 + 105,000) / 2).The basic EPS is therefore $400,000 / 102,500 = $3.52.

Charlotte Engineering Reported Net Income of $400,000 for the Year