On December 31, 2017, the Bennett Company had 105,000 shares of common stock issued and outstanding. On July 1, 2018, the company sold 21,000 additional shares for cash. Bennett's net income for the year ended December 31, 2018, was $590,000. During 2018, Bennett declared and paid $85,000 in cash dividends on its nonconvertible preferred stock. What is the 2018 basic earnings per share?

$5.84

Explanation:

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

Earnings available for equity share holders = Net income- Preference dividend

= $590,000 + $85,000

= $675,000

Equivalent shares outstanding = Common stock share + (Additional shares × From July to Dec 31 months)

= 105,000 + (21,000 × 6 ÷ 12)

= 105,000 + 10,500

= 115,500

So, Basic earning per share = Earnings available for equity share holders ÷ Equivalent shares outstanding

= $675,000 ÷ 115,500

= $5.84

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

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