On January 1, a corporation had 15,380 shares of common stock outstanding. On August 1, it sold an additional 5,000 shares. During the year, dividends of $4,800 and $56,000 were declared and paid on the common and preferred stock, respectively. Net income for the year was $250,000. The basic earnings per share for the year was (round to the nearest whole dollar)

Question

Quizplus · Accepted Answer

To calculate basic earnings per share (EPS), use the formula: EPS = (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding. Net income is $250,000, and preferred dividends are $56,000, so the amount available to common shareholders is $194,000. The weighted average shares outstanding is calculated as follows: 15,380 shares for 7 months and 20,380 shares for 5 months, resulting in a weighted average of 17,380 shares. Therefore, EPS = $194,000 / 17,380 = $11.16, which rounds to $11.11.

On January 1, a Corporation Had 15,380 Shares of Common