Question

Mechforce, Incorporated had net income of $180,800 for the year ended December 31,2022 . At the beginning of the year, 17,000 shares of common stock were outstanding. On April 1, an additional 21,000 shares were issued. On October 1 , the company purchased 5.000 shares of its own common stock and held them as treasury stock until the end of the year. No other changes in common shares outstanding occurred during the year. During the year, Mechforce paid the annual dividend on the 6,000 shares of 4.95%,$100 par value preferred stock that were outstanding the entire year.

Required:
Calculate basic earnings per share of common stock for the year ended December 31, 2022.
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Earnings per share _____

Answer 1

To calculate Mechforce, Incorporated's basic earnings per share (EPS) for the year ended December 31, 2022, determine the weighted average number of common shares, subtract preferred dividends from net income, and divide by the weighted average shares. The basic EPS for the year is $4.79.

Step-by-step explanation:

To calculate basic earnings per share for Mechforce, Incorporated for the year ended December 31, 2022, we need to follow several steps. First, we start by calculating the weighted average number of common shares outstanding during the year. The company had 17,000 shares for the entire year, added 21,000 shares on April 1, and then purchased 5,000 treasury shares on October 1. The weighted average is calculated by taking the number of shares outstanding and multiplying them by the portion of the year they were outstanding:

• 17,000 shares × 12/12 = 17,000
• 21,000 additional shares × 9/12 (Apr 1 to Dec 31) = 15,750
• (5,000 treasury shares) × 3/12 (Oct 1 to Dec 31) = (1,250)

The sum of these amounts yields a weighted average of 31,500 shares. Next, we calculate the dividends paid on preferred stock: 6,000 shares × 4.95% × $100 par value = $29,700. The net income available to common shareholders is the net income minus preferred dividends: $180,800 - $29,700 = $151,100. To calculate EPS, divide this amount by the weighted average number of shares: $151,100 / 31,500 shares = $4.79 (rounded to two decimal places).

Therefore, the basic EPS for Mechforce, Incorporated for the year ended December 31, 2022, is $4.79.