Question

Interurban Company began operations on the first day of the year. On that day they issued 30,000 shares. On March 1 they issued 14,000 shares and on July​ 1, another 30,000 shares. On December​ 1, Interurban repurchased 6,000 shares of outstanding shares. Compute basic EPS for the first year of operation if net income was $100,000.

A.$1.78

B. $3.75

C. 3.33

D. $1.47

Answer 1

Answer

Option A

$1.78

Explanation

Weighted average number of shares is computed using the equation given below:

Number of shares = {Beginning Shares outstanding × Period due} + {Shares issued on March 1 × Period due} + {Shares issued on July 1 × Period due} – {Shares purchased on Dec. 1 × Period due}

                              = {30,000 × (12 ÷ 12)} + {14,000 × (10 ÷ 12)} +{30,000 × (6 ÷ 12)} - {6,000 × (1÷ 12)}

                              =30,000 + 11,667 + 15,000 - 500

                              = 56,167 shares

EPS is computed using the equation given below:

EPS = Net income / Weighted average shares

= $100,000 / 56,167

= $1.78