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Argo Corp had net income of $34,400 in 2019. Argo declared $4,000 of dividends on preferred stock and $12,000 on common stock. On Jan.1, 8,000 shares of common stock were outstanding. Argo issued an additional 2,000 shares of common stock on June 30, 2019 and again on Oct. 1. Compute basic earnings per share for 2019

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jepessoa

Answer:

$3.38 per share

Explanation:

earnings per share (EPS) = (net income - preferred dividends) / weighted average outstanding shares

  • net income = $34,400
  • preferred dividends = $4,000
  • weighted average outstanding shares = 8,000 + (2,000 x 50%*) = 9,000

earnings per share = ($34,400 - $4,000) / 9,000 = $3.38 per share

*Since the shares were issued in June 30, their relative weight is 50% for the year.

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