On December 31, 2008, the Frisbee Company had 250,000 shares of common stock issued and outstanding. On March 31, 2009, the company sold 50,000 additional shares for cash. Frisbee's net income for the year ended December 31, 2009 was $700,000. During 2009, Frisbee declared and paid $80,000 in cash dividends on its nonconvertible preferred stock. What is the 2009 basic earnings per share?

Question

Quizplus · Accepted Answer

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. In this case, the weighted average number of common shares outstanding is 275,000, which is the average of the 250,000 shares outstanding on December 31, 2008 and the 300,000 shares outstanding on March 31, 2009. Therefore, the basic earnings per share is $700,000 / 275,000 = $2.55.

On December 31, 2008, the Frisbee Company Had 250,000 Shares