Question

On January 1, 2020, Moving Company had 1,000,000 shares of $ 1 par value common stock, and 100,000 shares of $ 100 par value, 6% preferred stock outstanding. (The preferred stock is NOT convertible into common stock)
On July 1, 2020, Moving Company issued an additional 400,000 shares of common stock, receiving $ 20 per share. No additonal share transactions were made during the year, and thus on December 31, 2020,Moving Company had 1,400000 shares of Common Stock, and 100,0000 shares of Preferred Stock outstanding.
During 2020, Moving Company reported Net Income in the amount of $ 3,000,000, declared and paid a total of $ 600,000 of Preferred Dividends, and declared and paid a total of $ 700,000 of Common Stockdividends.

Based on the information provided above, what is the "Basic Earnings Per Share" for Moving Company for the fiscal year ending December 31, 2020?

A.$ 2.00

B.$ 2.50

C.$ 8.50

D.None of the above

Answer 1

Solution :

Answer : The Answer is (A) $ 2.00

Working :

EPS = Earning Attributable to Common Share Holder / Weighted Average Share Outstanding During The year

Step 1 : Earning Attributable to Common Share Holder

Earning Attributable to Common Share Holder = Net Income - Dividend to Preference Share Holder

= $ 3,000,000 - $ 600,000

= $ 2,400,000  

Step 2 : Share Outstanding During the Year

Date	Particulars	Outstanding Shares
Jan 1, 2020	Opening Balance	1,000,000
July 1, 2020	400,000 Share Issued	400,000 / 12 * 6 = 200,000
Total		1,200,000

Step 3 : EPS

EPS = $ 2,400,000 / 1,200,000

= $ 2 per Share

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