172500 looooo 12500 At December 31, year 1, the Merlin Company had 50,000 shares of common stock issued and outstanding. On April 1, year 2, an additional 10,000 shares of common stock were issued. Merlin's net income for the year ended December 31, year 2, was $172,500) During year 2, Merlin declared and paid($100,000 cash dividends on its nonconvertible preferred stock. The basic earnings per common share, rounded to the nearest penny, for the year ended December 31, year 2, should be 172500 $1.26 1ooooo/EXPlian How we w 1.26=(- 72500. = got 57,500 ? This answer is correct. The formula for EPS is EPS (Net income - Applicable preferred dividends) (Weighted average number of common shares outstanding) The $172,500 must be reduced by the $100.000 dividend to the preferred stockholders. The 50,000 shares outstanding at the beginning of the year must be adjusted to reflect the 10,000 shares that were outstanding for 9 months, resulting in a total weighted-average of 57,500 shares outstanding. The final computation is the $72,500 of adjusted earnings divided by 57,500 shares, resulting in $1.26 of EPS