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Ringmeup Inc had net income of $126,300 for the year ended December 31, 2013. At the beginning of...

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

Basic Earning Per Share

Earning per share is one of the financial ratio and is also shown along with balance sheets. This ratio shows how much the company is earning against each share or we can say that how much each share gets of the total earnings. The earning per share is computed by dividing the average number of common stock from net earnings available to common stock.

Answer and Explanation:


Basic earning per share = Net earnings available to common stock/ weight average of shares outstanding

Here,

  • Earnings available for common stock = Net Income - Dividend paid to preferred stock => $126300 - (7000 shares * $100 * 4.75%) = $93050
  • Weighted Average of shares outstanding = 44000 shares * (12/12) + 13000 shares * (8/12) - 4500 shares * (1/12) = 52291.67 shares

So,

Basic Earnings Per Share of Common Stock = $93050 / 52291.67 shares = $1.779 per share.


Learn more about this topic:

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How to Calculate Earnings Per Share: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 14
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