At December 31, 2014, Hancock Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2014. Net income for the year ended December 31, 2014, was $1,360,000. What should be Hancock's 2014 earnings per common share, rounded to the nearest penny?

Question

Quizplus · Accepted Answer

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

Weighted average number of common shares outstanding is calculated as:

(Shares outstanding for the full year x 12) + (Shares outstanding for the partial year x number of months) / 12

[(400,000 x 12) + (100,000 x 3)] / 12 = 433,333 shares

EPS = $1,360,000 / 433,333 = $3.1357

Rounding to the nearest penny, EPS is $3.20.

Therefore, the best choice is C.

At December 31, 2014, Hancock Company Had 500,000 Shares of Common