Question

Ringmeup Inc. had net income of $102,700 for the year ended December 31, 2019. At the beginning of the year, 36,000 shares of common stock were outstanding. On May 1, an additional 12,000 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 7,000 shares of 4.30%, $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. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

For Year 2019

Basic Earnings per Share = Net Income available to Common Stockholders / Weighted Average Common Stock Shares Outstanding

Basic Earnings per Share = 72,600 / 43,625

Basic Earnings per Share = $ 1.66 Per Share

Notes

Net Income available to Common Stockholders = Net Income for Year 2019 - Preferred Dividends

Amount of Preferred Dividends = (7,000 Shares * $ 100 per Share) * 4.30%

= 700,000 * 4.30%

= $ 30,100

Net Income available to Common Stockholders = 102,700 - 30,100

= $ 72,600

Calculation of Weighted Average Shares

	A	B	C=A*B
Period	Number of Share	Time Period	Total
Jan 01 to May 01	36,000	4/12	12,000
May 01 to Dec 01	48,000	7/12	28,000
Dec 01 to Dec 31	43,500	1/12	3,625
Total			43,625

Notes

Time Period = Holding Period of Shares in Months / Total Months in a Year

Number of Shares from 01 May to Dec 01 = 36,000 + 12,000(New Shares Issued) = 48,000 Shares

Number of Shares from 01 Dec - 31 Dec = 48,000 - 4,500 (Shares Purchase Back) = 43,500 Shares