Question

Ringmeup had a net income of 165200 for the year ended Dec31,2016At the beginning of the year 37000 sharesof common stockwere outstanding. On May1 an additional 15000 shares were issued. On Dec2. the Comp purchased 4900 shares of its own common stock and held them as treasury stock until the end of the year. During the year Ringmeup paid annual divedend of 8000 shares of 3.80% 100 per value preferred stock that were outstanding the entire year. Calculate basic earning per share of common stock that were outstanding the entire year

Answer 1

• All working forms part of the answer
• Basic Earnings per share = Net Income for Common Stockholders / No. of weighted average common stock shares outstanding
• Working #1: Calculation of no. of weighted average common stock shares

	No. of shares	Cumulative shares	Period they which remain outstanding	Weighted Average shares outstanding	Working
Beginning balance	37,000	37,000	4 months [1 Jan to 30 April]	12,333	[37000 x 4/12]
Issued on May 1	15,000	52,000	7 months [1 May to 30 Nov]	30,333	[52000 x 7/12]
Treasury Stock In dec	(4,900)	47,100	1 month	3,925	[47100 x 1/12]
Total No. of weighted average no. of common stock outstanding				46,592

• Working #2: Calculation of Preferred Stock Dividend

A	No. of preferred stock	8,000
B	Par Value	$                                         100.00
C = A x B	Amount of Preferred Stock	$                                 800,000.00
D	Dividend rate	3.80%
E = C x D	Amount of Preferred Stock dividend	$                                   30,400.00

• Answer: Basic Earnings per share calculation

A	Net Income	$                                 165,200.00
B	Amount of Preferred Stock dividend [see Working #2]	$                                   30,400.00
C = A - B	Net Income for Common Stockholders	$                                 134,800.00
D	Total No. of weighted average no. of common stock outstanding [see Working #1]	46,592
E = C/D	Basic Earnings per share	$                                              2.89 = ANSWER