Flyaway Travel Company reported net income for 2021 in the amount of $105,000. During 2021, Flyaway declared and paid $3,625 in cash dividends on its nonconvertible preferred stock. Flyaway also paid $25,000 cash dividends on its common stock. Flyaway had 55,000 common shares outstanding from January 1 until 25,000 new shares were sold for cash on April 1, 2021. What is 2021 basic earnings per share?

Question

Stacy Rangel

Business

24 August, 20:15

Flyaway Travel Company reported net income for 2021 in the amount of $105,000. During 2021, Flyaway declared and paid $3,625 in cash dividends on its nonconvertible preferred stock. Flyaway also paid $25,000 cash dividends on its common stock. Flyaway had 55,000 common shares outstanding from January 1 until 25,000 new shares were sold for cash on April 1, 2021. What is 2021 basic earnings per share?

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Answers (1)

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Garrett Gilmore · Answer 1

The 2021 basic earnings per share is $1.68

Explanation:

In order to calculate the 2021 basic earnings per share we would have to use the following formula:

Basic EPS = (Net income - Preferred Dividend) / Weighted average common shares outstanding

According to given dа ta:

Net income=$105,000

Preferred Dividend=$3,625

The calculation of the Weighted average common shares outstanding would be as follows:

Period Months Number of shares outstanding Weighted Number

A B A*B / 12

Jan 1 to Mar 31 3 55,000 13,750

April 1 to Dec. 31 9 80,000 (55,000 + 25,000) 60,000

(40000+10000)

The Weighted average common shares is 60,000

Therefore, Basic EPS = (Net income - Preferred Dividend) / Weighted average common shares outstanding

Basic EPS = ($105,000 - $3,625) / 60,000

Basic EPS=$1.68