Calculate basic EPS Net income was $659,250 for the year. Throughout the year the company had outstanding 18,000 shares of $2.50, $50 par value preferred stock in 105,000 shares of common stock.
Required:
Calculate basic earnings per share of common stock for the year.
4.2
To calculate the basic earnings per share (EPS) of common stock, you need to divide the net income by the weighted average number of outstanding common shares.
Step 1: Calculate the weighted average number of outstanding common shares.
The company had 18,000 shares of preferred stock outstanding throughout the year, which is not included in the EPS calculation. So, we'll only consider the common stock shares.
The number of common shares outstanding is given as 105,000.
Step 2: Determine the weighted average number of outstanding common shares.
To calculate the weighted average number of outstanding common shares, you need to know if there were any changes in the number of common shares during the year, such as stock splits or stock issuances or repurchases. If there were any changes, you would need to calculate the weighted average based on the number of common shares for each period.
Since the question doesn't mention any changes, we can assume that the 105,000 shares of common stock were outstanding for the entire year. Therefore, the weighted average number of common shares is 105,000.
Step 3: Calculate the basic EPS.
The formula for calculating basic EPS is:
Basic EPS = Net Income / Weighted Average Number of Outstanding Common Shares
Using the given figures:
Net Income = $659,250
Weighted Average Number of Outstanding Common Shares = 105,000
Plug in the values into the formula:
Basic EPS = $659,250 / 105,000
Calculating this gives us:
Basic EPS = $6.28 per share
Therefore, the basic earnings per share of common stock for the year is $6.28.