Question

Ringmeup Inc. had net income of $159,900 for the year ended December 31, 2019. At the beginning of the year, 39,000 shares of common stock were outstanding. On May 1, an additional 11,000 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 paid the annual dividend on the 8,000 shares of 3.95%, $100 par value preferred stock that were outstanding the entire year.

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

Answer 1

Solution:

Computation of weighted average outstanding shares For year ended May 31, 2018
Particulars	Outstanding shares	Period Outstanding	Weighted average Nos of shares
Beginning balance	39000	12	39000
Additional stock issued on 01.05.2019	11000	8	7333
Treasury stock	-4500	1	-375
Weighed average outstanding shares for year ended Dec 31, 2019			45958

Basic earning per share = (net income - Preferred dividend) / Weighted average outstanding shares

= ($159,900 - 8000*$100*3.95%) / 45958 = $2.79 per share