Getaway Travel Company reported net income for 2016 in the amount of $50,000.During 2016,Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock.Getaway also paid $10,000 cash dividends on its common stock.Getaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on July 1,2016.A 2-for-1 stock split was granted on July 5,2016.What is the 2016 basic earnings per share (rounded)?
A)$.42.
B)$.47.
C)$.53.
D)$.56.

Question

Quizplus · Accepted Answer

Basic earnings per share (EPS) = (Net income - Preferred dividends) / Weighted average number of common shares outstanding

Net income = $50,000
Preferred dividends = $2,000
Common dividends = $10,000

Weighted average number of common shares = [(40,000 x 6/12) + (50,000 x 6/12)] / 2 = 45,000

After the stock split, the number of common shares outstanding is doubled, so there are now 90,000 shares.

Therefore, Basic EPS = ($50,000 - $2,000) / 45,000 = $1.09 per share before the stock split

After the stock split, the number of shares outstanding is doubled to 180,000.

New Basic EPS = $1.09 / 2 = $0.545 per share after the stock split

Rounded to the nearest cent, the basic EPS for 2016 is $0.53.

Getaway Travel Company Reported Net Income for 2016 in the Amount