In 2014 Farrow Ltd. earned gross revenues of $2,500,000 and had net income of $480,000. During 2014 the company had 200,000 common shares outstanding and its average shareholders' equity was $1,000,000. Farrow's basic earnings per share for 2014 is
A) $2.50.
B) $2.40.
C) $12.50.
D) $0.48.

Question

Quizplus · Accepted Answer

Basic earnings per share (EPS) is calculated by dividing net income by the average number of common shares outstanding.

EPS = Net Income / Average Shares Outstanding

Average Shareholder's Equity = $1,000,000

Net Income = $480,000

EPS = $480,000 / 200,000 = $2.40

Therefore, the answer is B: $2.40.