Question

At December 31, 2014, Hancock Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2014. Net income for the year ended December 31, 2014, was $1,360,000. What should be Hancock's 2014 earnings per common share, rounded to the nearest penny?

Select one:
A. $2.69
B. $3.40
C. $3.20
D. $3.03

Answer 1

Hancock's 2014 earnings per common share is $1.81.

Step-by-step explanation:

To calculate the earnings per common share, we need to divide the net income by the weighted average number of common shares outstanding for the period. In this case, there are two different numbers of common shares outstanding during the year: 400,000 shares for the first nine months and 500,000 shares for the last three months.

To calculate the weighted average number of common shares, we multiply the number of shares outstanding for each period by the respective length of time they were outstanding.

(400,000 shares × 9/12) + (500,000 shares × 3/12) = 750,000 shares

Now, we can calculate the earnings per common share:

$1,360,000 / 750,000 shares = $1.81 per share (rounded to the nearest penny).