Getaway Travel Company reported net income for 2009 in the amount of $50,000. During 2009, Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock. Getaway also paid $10,000 cash dividends on its common stock. Getaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on July 1, 2009. A 2-for-1 stock split was granted on July 5, 2009. What is the 2009 basic earnings per share?
A)$.42.
B)$.47.
C)$.53.
D)$.56.

Question

Quizplus · Accepted Answer

First, we need to adjust for the stock split. After the split, there would be 80,000 common shares outstanding.

Next, we need to calculate the weighted average number of shares outstanding. From January 1 to July 1, there were 40,000 shares outstanding. From July 1 to December 31, there were 80,000 shares outstanding.

Weighted average number of shares outstanding = (40,000 x 6/12) + (80,000 x 6/12) = 60,000

Now we can calculate basic earnings per share:

Net income - preferred dividends / weighted average number of shares outstanding

($50,000 - $2,000 - $10,000) / 60,000 = $38,000 / 60,000 = $.53 per share.

Therefore, the answer is C.

Getaway Travel Company Reported Net Income for 2009 in the Amount