Question

Company reported net income for 2018 in the amount of $50,000. During 2018, Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock. Getaway also paid $10,000 cash dividends on its common stock. Getaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on July 1, 2018. A 2-for-1 stock split was granted on July 5, 2018. What is the 2018 basic earnings per share (rounded)?

Answer 1

Basic EPS $1.02

Step-by-step explanation:

Basic EPS=Net income-Dividend on preferred stocks/Average Oustanding shares

Average Shares outstanding=45,000

40,000*6/12=20,000

50000*6/12=25,000

By putting values in above formula, we get

Basic EPS=$50,000-$2,000/45,000

Basic EPS=$1.02