On December 31, 2021, the Rusty Inc. had 120,000 shares of common stock issued and outstanding. On July 1, 2022, the company sold 21,000 additional shares for cash. Rusty's net income for the year ended December 31, 2022, was $600,000. During 2022, Rusty declared and paid $87,000 in cash dividends on its nonconvertible preferred stock. What is the 2022 basic earnings per share

The basic EPS is $3.93 per share

Explanation:

The basic earnings per share tells us how much earnings each share of common stock has earned for the year. The basic EPS is calculated by deducting the preferred stock dividend form the Net income and dividing the answer by the weighted average number of common shares outstanding during the year.

Basic EPS = (Net Income - Preferred dividends) / Weighted average number of common shares outstanding

Weighted average number of common shares = 120000 + 21000 * 6/12

Weighted average number of common shares = 130500 shares

Basic EPS 2022 = (600000 - 87000) / 130500

Basic EPS 2022 = $3.93

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