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17 December, 12:45

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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  1. 17 December, 15:52
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    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
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