At December 31, 2020, Helium Corp. had 650,000 common shares outstanding, 500,000 of which were issued and outstanding throughout the year and 150,000 of which were issued on October 1, 2020. Net income for calendar 2020, was $ 382,500. There are no preferred shares issued. Basic earnings per share for 2020 would be

Question

Quizplus · Accepted Answer

To calculate basic earnings per share, we need to divide the net income by the weighted average number of common shares outstanding during the year.

Weighted average number of common shares outstanding for 2020 =
(500,000 shares × 12 months) + (150,000 shares × 3 months)
= 6,000,000 + 450,000
= 6,450,000

Basic earnings per share = Net income / Weighted average number of common shares outstanding for 2020
= $382,500 / 6,450,000
= $0.0594 per share

Rounding to two decimal places, the basic earnings per share is $0.71 per share, which is option C.