Question

Vaquita reported net income for the year of $1,810,000 and declared dividends of $453,000. At the beginning of the year, the company had 906,000 shares of common stock and no shares of preferred stock outstanding, and at the end of the year they had sold an additional 1,558,320 shares of common stock. What should Vaquita report as EPS for the period?

Answer 1

Earnings per Share (EPS):

This is the ratio of net income (NI) to average outstanding common shares (AOCS).

Since there is no preferred stock, dividends are for common shares only and not to be considered in EPS calculation.

Beginning common shares = 906,000

Ending common shares = 906,000 + 1,558,320 = 2,464,320

AOCS = (Beginning common shares + Ending common shares) / 2

            = (906,000 + 2,464,320) / 2

            = 3,370,320 / 2

            = 1,685,160

EPS = NI / AOCS

        = 1,810,000 / 1,685,160

        = $1.07 (Answer)