Question

Flyaway Travel Company reported net income for 2021 in the amount of $101,000. During 2021, Flyaway declared and paid $3,225 in cash dividends on its nonconvertible preferred stock. Flyaway also paid $21,000 cash dividends on its common stock. Flyaway had 51,000 common shares outstanding from January 1 until 21,000 new shares were sold for cash on April 1, 2021. What is 2021 basic earnings per share

Answer 1

The basic EPS for Flyaway in 2021 is $1.4648 per share

Step-by-step explanation:

The basic earnings per share or basic EPS is the amount of earnings that are allocable to the common stockholders expressed in terms of per share earnings. The basic EPS is calculated by dividing the Net Income after adjusting for preferred stock dividends by the amount of weighted average number of common share outstanding during the Year. Thus, the formula for Basic EPS is,

Basic EPS = (Net Income - Preferred stock dividends) / Weighted average number of common shares outstanding

Weighted average number of common share outstanding during the year for Flyaway is = 51000 + 21000 * 9/12 = 66750 shares

Basic EPS = (101000 - 3225) / 66750

Basic EPS = $1.4647 per share