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Basic Earnings per Share Monona Company reported net income of...

School name
Southern New Hampshire University

Course
Question 620
INTERMEDIA-acc

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Department
Asked by CorporalSalamander1217
INTERMEDIA

Basic Earnings per Share

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Monona Company reported net income of $29,975 for 2016. During all of 2016, Monona had 1,000 shares of
10%, $100 par, nonconvertible preferred stock outstanding, on which the year's dividends had been paid. At
Answered step-by-step
the beginning of 2016, the company had 7,000 shares of common stock outstanding. On April 2, 2016, the
company
Solved issued another
by verified 2,000 shares of common stock so that 9,000 common shares were outstanding at
expert
the end of 2016. Common dividends of $17,000 had been paid during 2016. At the end of 2016, the market
price per share of common stock was $17.50.

1. Compute Monona's basic earnings per share for 2016. If required, round your answer to two decimal places.

Weighted Average number of common shares

Jan-March 7000 shares X 3/12 (fraction of year outstanding) = 1750
April - Dec 2000 shares X 9/12 (fraction of year outstanding) = 1500

Answer: $29,975-$10,000/3250= 6.15 per share

2. Compute the price/earnings ratio for 2016. If required, round your answer to one decimal place.
Answer: $17.50/6.15 = 2.85 times

I have computed these numbers multiple times, but I still get it wrong, can you please assist. What am I
missing?

BUSINESS ACCOUNTING INTERMEDIA acc 620

Answer & Explanation

Solved by verified expert
Rated Helpful

Answered by christine10madelo

1. $2.35
2. 7.45 times

Step-by-step explanation

The fraction should be based from issuance date to end of the period which December 31. Jan. 1 to Dec.
31 is 12/12, Apr. 2 to Dec. 31 is 9/12.

Image transcription text

Date Shares Fraction Average shares Jan.1 7,000 12/12 7,000 Apr. 2 2,000 9/12 1,500 Total weighted average
common shares 8,500 1. Basic Earnings Per Shares: = (Net income - dividend on preferred shares)/weighted
average common shares = (29,975 - (1,000*100* .10))/8,500 = 19,975/8,500 = 2.35 2. Price/earnings ratio: = Market
price/earnings per share = 17.50/2.35 =7.45 Show less

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