The Cow Company had 50,000 shares of common stock outstanding on January 1, 2014

Question

The Cow Company had 50,000 shares of common stock outstanding on January 1, 2014. On April 1, 2014, the company issued 20,000 shares of common stock. The company also has stock options outstanding that can be exercised for 5,000 common shares at an option price of $12 per share. The options were outstanding for the entire year but none were exercised. The end-of-year market price of common stock was $13 while the average price for the year was $15. The company reported net income of $266,500 for 2014.

What is the Basic earnings per share for 2014?

Explanation / Answer

Answer

Basic Earning per share = Net income / weighted average no. of share outstanding during the year.

=    $266500 /65000

= $4.1

Weighted average no. of share outstanding during the Year = 50000* 12/12 + 20000*9/12 = 65000

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