Question

At December 31, 2012, Reid Company had 600,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 200,000 of which were issued on October 1, 2012. Net income for 2012 was 2,000,000, and dividends declared on preferred stock were 400,000. Compute Reid's earnings per common share. (Round to the nearest penny.)

Answer 1

To calculate Reid's earnings per common share, divide the net income by the weighted average number of shares outstanding.

Step-by-step explanation:

To calculate Reid's earnings per common share, we need to divide the net income by the weighted average number of shares outstanding. The weighted average number of shares is calculated by taking the number of shares outstanding throughout the year and multiplying it by the number of days and then adding the number of shares issued on October 1, 2012 multiplied by the number of days from October 1 to December 31.

In this case, the weighted average number of shares is ((400,000 shares x 365 days) + (200,000 shares x 92 days)) / 365 days = 328,219 shares.

Earnings per common share is calculated as net income divided by the weighted average number of shares: $2,000,000 / 328,219 shares ≈ $6.09 per share.