Basic earnings per share is computed using:
A) The actual number of common shares outstanding at the end of the year.
B) A weighted-average of preferred and common shares.
C) The number of common shares outstanding plus potential common shares.
D) Weighted-average common shares outstanding for the year.

Question

Quizplus · Accepted Answer

Basic earnings per share is calculated by dividing the net income available to common shareholders by the weighted-average common shares outstanding for the year. This method takes into account any changes in the number of shares outstanding throughout the year, unlike using only the number of shares at the end of the year (option A). It also does not include potential common shares, such as stock options or warrants (option C), nor does it factor in preferred shares (option B) which have priority over common shares in terms of dividends and distributions.

Basic Earnings Per Share Is Computed Using