CFA-Level-I Free Dumps Study Materials
Question 10: The following data pertains to the McGuire Company:
Net income: $15,000. 5,000 shares of common stock issued on January 1st. 10 percent stock dividend
issued on June 1st. 1000 shares of common stock were repurchased on July 1st. 1000 shares of 10
percent, par $100 preferred stock each convertible into 8 shares of common were outstanding the
whole year.
What is the company's basic earnings per share (EPS)?
A. 1.2
B. 1.0
C. 2.5
Correct Answer: B
Explanation: Number of average shares:
1 /1: 5,500 shares issued (includes 10% stock dividend on 6/1) x 12 months = 66,000. 7/1: 1,000
shares
repurchased x 6 months = -6,000. 60,000 shares/12 months = 5,000 average shares. Preferred
dividends
= ($10)( $1000) = $10,000. Basic EPS = [$15,000(NI) - $10,000(preferred dividends)]/5,000 shares =
$ 5,000/5,000 shares = $1/share