Getaway Travel Company reported net income for 2016 in the amount of $50,000. During 2016, Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock. Getaway also paid $10,000 cash dividends on its common stock. Getaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on July 1, 2016. A 2-for-1 stock split was granted on July 5, 2016. What is the 2016 basic earnings per share?

A. $.56B. $.53C. $.42D. $.47

Question

Ace Petty

Business

23 June, 19:01

Getaway Travel Company reported net income for 2016 in the amount of $50,000. During 2016, Getaway declared and paid $2,000 in cash dividends on its nonconvertible preferred stock. Getaway also paid $10,000 cash dividends on its common stock. Getaway had 40,000 common shares outstanding from January 1 until 10,000 new shares were sold for cash on July 1, 2016. A 2-for-1 stock split was granted on July 5, 2016. What is the 2016 basic earnings per share?

A. $.56B. $.53C. $.42D. $.47

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Answers (1)

Know the Answer?

Breanna · Answer 1

Option (B) is correct.

Explanation:

Given that,

Net income = 50,000

Preferred dividend = 2,000

Outstanding common stock:

= (40,000 * 2) + (10,000 * 6/12 * 2)

= 80,000 + 10,000

= 90,000

2016 basic earnings per share:

= (Net income - Preferred dividend) : Outstanding common stock

= (50,000 - 2,000) : 90,000

= 48,000 : 90,000

= $0.53 per share

Therefore, the 2016 basic earnings per share is $0.53.