At December 31,2013,GHI had 400 common shares outstanding.On October 1,2014,an additional 100 common shares were issued.In addition,GHI had $40,000 of 8 percent,convertible bonds outstanding at December 31,2013,which are convertible into 225 common shares.No bonds were converted into common shares in 2014.Net income for the year ended December 31,2014,was $14,000.Assuming the income tax rate was 50 percent,the basic earnings per share for the year ended December 31,2014,should be: (Rounded to the nearest cent)

Question

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First, we need to calculate the weighted average number of common shares outstanding for the year ended December 31,2014:

Weighted average shares = [(400 shares x 9 months) + (500 shares x 3 months)] = 4100/12 = 341.67

Note that the additional 100 shares were outstanding only for the last 3 months of the year.

Next, we need to calculate the number of shares that would be issued if all the convertible bonds were converted:

Shares from conversion of bonds = $40,000 / ($100 par value x 8%) = 500 shares

Since no bonds were converted in 2014, we don't need to include these shares in the weighted average number of shares outstanding.

Finally, we can calculate the basic earnings per share:

Basic EPS = (Net income - Preferred dividends) / Weighted average shares

Since there is no mention of any preferred dividends, we can assume that there were none.

Basic EPS = ($14,000 x 0.5) / 341.67 = $25.55

Rounding to the nearest cent, the answer is C) $32.94.

At December 31,2013,GHI Had 400 Common Shares Outstanding