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 common stock equivalents.
D)Weighted-average common shares outstanding for the year.

Question

Quizplus · Accepted Answer

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted-average of common shares outstanding during the period. This method takes into account any changes in the number of shares outstanding during the year, as well as any stock splits or reverse stock splits that may have occurred. It only considers common shares, not preferred shares or stock options or warrants that could potentially dilute the number of outstanding shares. Therefore, choice D is the best option as it represents the correct method to calculate basic earnings per share.

Basic Earnings Per Share Is Computed Using