Question

Mechforce, Incorporated had net income of $130,700 for the year ended December 31, 2022. At the beginning of the year, 13.000 shares of common stock were outstanding. On April 1, an additional 24,000 shares were issued. On October 1, the company purchased 4,000 shares of its own common stock and held them as treosury 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 9,000 shares of 5.00%,$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.

Answer 1

The basic EPS for Mechforce, Incorporated is calculated by subtracting preferred dividends from the net income and dividing by the weighted average number of shares outstanding throughout the year, which are adjusted for shares issued and bought back.

Step-by-step explanation:

To calculate the basic earnings per share (EPS) for Mechforce, Incorporated, we need to adjust for the number of shares during different times of the year and subtract any preferred dividends. Since the company had 13,000 shares outstanding at the beginning of the year, issued an additional 24,000 on April 1, and then bought back 4,000 on October 1 as treasury stock, the weighted average number of shares outstanding must be calculated.

The weighted average number of shares is:
(13,000 shares * 3/12) + ((13,000 shares + 24,000 shares) * 6/12) + ((13,000 shares + 24,000 shares - 4,000 shares) * 3/12).

After finding the weighted average number of shares, we then subtract the preferred dividends from the net income. The annual dividend on preferred stock is 9,000 shares * 5% of the $100 par value, which is $45,000 ($5 per share * 9,000 shares). The adjusted net income for common shareholders is $130,700 - $45,000. Finally, we divide the adjusted net income by the weighted average number of shares to find the EPS.