Question

On December 31, 2017, Ainsworth, Inc., had 800 million shares of common stock outstanding. Twenty five million shares of 6%, $100 par value cumulative, nonconvertible preferred stock were sold on January 2, 2018. On April 30, 2018, Ainsworth purchased 30 million shares of its common stock as treasury stock. Twelve million treasury shares were sold on August 31. Ainsworth issued a 5% common stock dividend on June 12, 2018. No cash dividends were declared in 2018. For the year ended December 31, 2018, Ainsworth reported a net loss of $165 million, including an after-tax loss from discontinued operations of $450 million. Required: 1. Compute Ainsworth's net loss per share for the year ended December 31, 2018. 2. Compute the per share amount of income or loss from continuing operations for the year ended December 31, 2018. 3. Prepare an EPS presentation that would be appropriate to appear on Ainsworth's 2018 and 2017 comparative income statements. Assume EPS was reported in 2017 as $0.65, based on net income (no discontinued operations) of $520 million and a weighted-average number of common shares of 800 million.

Answer 1

Part 1

Ainsworth's net loss per share for the year ended December 31, 2018 = $0.38

Numerator (Basic EPS): Net loss = $165 million; Preferred dividends = $150 [(6% x $100) x 25 million)

Denominator (Basic EPS): Weighted average # shares of common stock  

outstanding

1/1 – 12/31 800 x (12/12) = 800* 1.05 =840

4/30 – 12/31 (30) x (8/12) = (20) *1.05 = (21)

8/31 – 12/31 12 x (4/12) = 4

Weighted average # shares = 823

Basic EPS = (-$165 - $150) ÷ 823= $(0.38)

Part 2

per share amount of income or loss from continuing operations for the year ended December 31, 2018 = $0.16

Income from continuing operations (450-165)=285

Extraordinary loss, net of tax = (450)

Net loss = $(165)

EPS for continuing operations = ($285-$150) ÷ 823 = $0.16

Part 3

The 5% stock dividend issued on June 12, 2018 must be retroactively applied to 1/1/17

Weighted average # shares for 2017: 800 x 1.05 = 840

2017 EPS = $520 ÷ 840 = $0.62

2018 EPS from Extraordinary loss = $(450) ÷ 823 = $(0.55)

	2018	2017
EPS from continuing operations	0.16	0.62
Extraordinary loss, net of tax	(0.55)	0
EPS	(0.39)	0.62