A Company Had 30,000 Shares of Common Stock Outstanding on January

question 107

Multiple Choice

A company had 30,000 shares of common stock outstanding on January 1, 2010. An additional 10,000 shares were sold and issued on June 1 and 20,000 more were sold and issued on December 1. Pre-tax income for the year was $320,000. The income tax rate was 40 percent. Earnings per share were:

• A) $3.33.
• B) $6.67.
• C) $4.00.
• D) $3.20.

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Definitions:

Cash Surrender Value

Cash surrender value is the amount an insurance policyholder can receive if they decide to terminate the policy before its maturity or the insured event occurs.

Equity Funds

Mutual funds that primarily invest in company stocks, representing ownership in those companies.

Secured Loan

A loan that requires collateral as security for the lender.

Collateral

Assets that a borrower offers to a lender to secure a loan, which can be seized if the borrower fails to repay the loan.