Question

Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $1,050,000 for the year ending December 31, 2010. Earnings per share of common stock for 2010 would be

a. $1.75.
b. $.83.
c. $1.00.
d. $1.17.

Answer 1

To calculate earnings per share of common stock, divide the income applicable to common stock by the weighted average number of common shares outstanding during the period. In this case, the earnings per share for 2010 would be $1.00.

Step-by-step explanation:

Earnings per share of common stock can be calculated by dividing the income applicable to common stock by the weighted average number of common shares outstanding during the period. In this case, Hill Corp. had 600,000 shares outstanding for the first half of the year and 1,500,000 shares outstanding for the second half of the year (600,000 + 900,000). Therefore, the weighted average number of shares for the year would be:

Weighted average shares = (600,000 * 6 months + 1,500,000 * 6 months) / 12 months = 1,050,000 shares

Earnings per share can now be calculated by dividing the income applicable to common stock by the weighted average shares:

Earnings per share = Income applicable to common stock / Weighted average shares = $1,050,000 / 1,050,000 = $1.00

Therefore, the correct answer is option c. $1.00.