Ringmeup, Inc., had net income of $101,400 for the year ended December 31, 2016.

Question

Ringmeup, Inc., had net income of $101,400 for the year ended December 31, 2016. At the beginning of the year, 45,000 shares of common stock were outstanding. On May 1, an additional 17,000 shares were issued. On December 1, the company purchased 4,500 shares of its own common stock and held them as treasury stock until the end of the year. No other changes in common shares outstanding occurred during the year. During the year, Ringmeup, Inc., paid the annual dividend on the 6,000 shares of 4.35%, $100 par value preferred stock that were outstanding the entire year.

Required:

Calculate basic earnings per share of common stock for the year ended December 31, 2016. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Basic Earnings per share = Earning attributable to common stockholders/Weighted Average no. of shares outstanding

Earnings attributable to common stockholders = Net Income - Preferred Dividend

= $101,400-$6,000 = $95,400

Weighted Average number of shares outstanding should be calculated as follows:-

1/1/16 45,000 shares for 4 months (January to April)

5/1/16 (45,000+17,000) = 62,000 shares for 7 months (May to November)

12/1/16 (62,000-4,500) = 57,500 shares for 1 month (December)

Weighted Average No. of shares = (45,000*4/12)+(62,000*7/12)+(57,500*1/12) = 55,958 shares

Basic EPS of common stock for the year 2016 = $95,400/55,958 = $1.70 per share

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