Question

Ringmeup Inc had net income of $126,300 for the year ended December 31, 2013. At the beginning of the year, 44,000 shares of common stock were outstanding. On May 1, an additional 13,000 shares were issued. On December 1, the company purchased 4,500 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, Inc., paid the annual dividend on the 7,000 shares of 4.75%, $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, 2013

Answer 1

Answer:

$1.78

Explanation:

Basic Earnings Per Share = Earnings attributable to Common Stock Holders / Weighted Average number of shares outstanding at the end of year

Earnings attributable to common stockholders = Net Income - Preferred Stock Dividend paid in the year

Earnings attributable to common stockholders = $126,300 -  ($100*4.75%*7,000 Shares)

Earnings attributable to common stockholders = $126,300 - $33,250

Earnings attributable to common stock holders = $93,050

Weighted Average number of shares outstanding at the end of year = (44,000 * 11/12) + [(44,000 - 4,500) * 1/12] + (13,000 * 8/12)

= 40,333.33 + 3,291.67 + 8,666.67

= 52,291.67

Basic Earnings Per Share = $93,050 / 52,291.67 shares

Basic Earnings Per Share = $1.78