A corporation reported 19X1 net income of $156,000. On January 1, 19X1, 60,000 shares of common stock were outstanding. An additional 10,000 shares were sold and issued on April 1 and, 5,000 shares were purchased and retired on October 1. Earnings per share (rounded to the nearest cent) are:
A) $2.32.
B) $2.35.
C) $2.40.
D) $2.60.

Question

Quizplus · Accepted Answer

To calculate earnings per share (EPS), we need to determine the weighted average number of shares outstanding during the year. Starting with 60,000 shares, 10,000 additional shares were issued on April 1, so they were outstanding for 9 months (10,000 * 9/12 = 7,500). On October 1, 5,000 shares were retired, so they were outstanding for 9 months (5,000 * 9/12 = 3,750). The weighted average number of shares is 60,000 + 7,500 - 3,750 = 63,750. EPS = $156,000 / 63,750 = $2.45, which rounds to $2.40.

A Corporation Reported 19X1 Net Income of $156,000