The 2014 net income of MNO was $300,000,and 100,000 of its common shares were outstanding during the entire year.In addition,outstanding options existed to purchase 10,000 common shares at $10 per share.These options were granted in 2012 and none had been exercised by December 31,2014.MNO earned interest at 8% and had a 50% tax rate.The amount,which should be shown as MNO's basic earnings per share for 2014,is (rounded to the nearest cent):

Question

Quizplus · Accepted Answer

Basic earnings per share is calculated by dividing the net income available to common shareholders by the weighted average number of common shares outstanding during the year.

Weighted average number of common shares = 100,000 (since no new shares were issued or repurchased during the year)

Net income available to common shareholders = Net income - Preferred dividends

Since there is no information given about preferred dividends, it can be assumed that there were none.

Net income available to common shareholders = $300,000

Basic earnings per share = $300,000 / 100,000 = $3.00 per share

The outstanding options are not included in the calculation of basic earnings per share, since they are not yet exercised and do not represent actual shares outstanding.

The 2014 Net Income of MNO Was $300,000,and 100,000 of Its