Getaway Travel Company reported net income for 2013 in the amount of $50,000. During 2013, Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock. Getaway also paid $10,000 cash dividends on its common stock. Getaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on July 1, 2013. A 2-for-1 stock split was granted on July 5, 2013. What is the 2013 basic earnings per share (rounded)?
A)$.42.
B)$.47.
C)$.53.
D)$.56.

Question

Quizplus · Accepted Answer

First, we need to calculate the weighted average number of common shares outstanding:
40,000 x 6/12 (January 1 to June 30) + 50,000 x 2/12 (July 1 to August 4) = 20,000 + 8,333 = 28,333

Next, we need to adjust for the stock split:
28,333 x 2 = 56,666

Finally, we can calculate the basic earnings per share:
($50,000 - $2,000 - $10,000) / 56,666 = $38,000 / 56,666 = $.53 (rounded to the nearest cent)

Getaway Travel Company Reported Net Income for 2013 in the Amount