Question

Getaway Travel Company reported net income for 2021 in the amount of $50,000. During 2021, 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, 2021. A 2-for-1 stock split was granted on July 5, 2021. What is the 2021 basic earnings per share? (Round final answers to 2 decimal places.

Answer 1

Answer:

$0.53 per share

Explanation:

The computation of basic earnings per share is shown below:-

Basic earnings per share = (Net income - Preferred dividend) ÷ (Outstanding common stock)

= ($50,000 - $2,000) ÷ (40,000 × 2) + ($10,000 × 6 ÷ 12 × 2)

= $48,000 ÷ (80,0000 + $10,000)

= $48,000 ÷ $90,000

= $0.53 per share

Therefore for computing the basic earnings per share we simply applied the above formula.