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24 May, 19:04

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)
  1. 24 May, 21:22
    0
    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.
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