Question

Ringmeup Inc. had net income of $126,500 for the year ended December 31, 2019. At the beginning of the year, 45,000 shares of common stock were outstanding. On May 1, an additional 18,000 shares were issued. On December 1, the company purchased 4,300 shares of its own common stock and held them as treasury stock until the end of the year. No other changes in common shares outstanding occurred during the year. During the year, Ringmeup paid the annual dividend on the 7,000 shares of 4.25%, $100 par value preferred stock that were outstanding the entire year.

Calculate basic earnings per share of common stock for the year ended December 31, 2019.

Answer 1

Earning per share = $3.18

Step-by-step explanation:

In order to calculate basic earning per share firstly, we need to calculate the weighted average number of share outstanding

Shares months (months x shares)

1 January to 30 May 45,000 4 $180,000

1 May to 30 November 18,000 7 $126,000

1 Dec to 31 December 58,700 1 $58,700

Total 12 $364,700

Weighted average = $364,700/12

Weighted average = 30,391

Dividends required on preferred stock = 7000 x 4.25% x $100

Dividends required on preferred stock = $29,750

Net income available for shareholders = Net Income - dividend

Net income available for shareholders = $126,500 - $29,750

Net income available for shareholders = $96,750

Earning per share = Net Income/ no of shares

Earning per share = $96,750/30,391

Earning per share = $3.18