Purple Cab Company had 50,000 shares of common stock outstanding on January 1,2016.On April 1,2016,the company issued 20,000 shares of common stock.The company had outstanding fully vested incentive stock options for 5,000 shares exercisable at $10 that had not been exercised by its executives.The average market price of common stock was $12.The company reported net income in the amount of $269,915 for 2016.What is the basic earnings per share (rounded)?

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Quizplus · Accepted Answer

Basic earnings per share (EPS) is calculated by dividing net income by the weighted average number of common shares outstanding. The weighted average shares are calculated as follows: 50,000 shares for 3 months (Jan-Mar) and 70,000 shares for 9 months (Apr-Dec). Weighted average shares = (50,000 * 3/12) + (70,000 * 9/12) = 65,000 shares. Basic EPS = $269,915 / 65,000 = $4.15.

Purple Cab Company Had 50,000 Shares of Common Stock Outstanding