Financial Accounting (Shareholders equity)

Question

In 2020, Finishing touches Ltd had net income of $9,000,000. On 1st January 2020, there were 3,000,000 shares outstanding. On 1st July 2021, the company issued $600,000 new shares for $17 per share. The company paid $300,000 in dividends to common shareholders. What is their basic earnings per share in 2021?

The answer is 2.73.

I tried (9000000-300000)/(600000x6/12+3000000). I got the wrong answer. Please help me with this question, thank you.

Answer 1

When calculating basic earnings per share, you only deduct dividends if they are preferred dividends.

If you were calculated diluted earning per share, then you would include regular dividends.

Therefore your formula would be : 9,000,000 (net income)/ 3,300,000 (total share outstanding)

shares : ( 600,000 x 6/12) + 3,000,000 = 3,300,000