Question

On January 1, 2021, Buffalo Corp. had 472,000 shares of common stock outstanding. During 2021, it had the following transactions that affected the Common Stock account.

February 1		Issued 125,000 shares
March 1		Issued a 10% stock dividend
May 1		Acquired 100,000 shares of treasury stock
June 1		Issued a 3-for-1 stock split
October 1		Reissued 63,000 shares of treasury stock

a) The weighted-average number of shares outstanding

b) Assume that Buffalo Corp. earned net income of $3,568,000 during 2021. In addition, it had 101,000 shares of 9%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preferred dividend in 2021. Compute earnings per share for 2021, using the weighted-average number of shares determined in part (a). (Round answer to 2 decimal places, e.g. $2.55.)

c) Assume the same facts as in part (b), except that the preferred stock was cumulative. Compute earnings per share for 2021. (Round answer to 2 decimal places, e.g. $2.55.)

d) Assume the same facts as in part (b), except that net income included a loss from discontinued operations of $422,000 (net of tax). Compute earnings per share for 2021. (Round answer to 2 decimal places, e.g. $2.55.)

Answer 1

a) Calculation of Weighted average number of shares

	Date outstanding	No. of shares	Stock dividend restatement	Stock split restatement	Fraction of year	Weighted average shares
Beginning balance	Jan 1-Feb 1	472000	1.10	3	1/12	129800
Issued shares	Feb 1-Mar 1	(472000+125000)= 597000	1.10	3	1/12	164175
Stock dividend	Mar 1-May 1	(597000*1.10)= 656700	-	3	2/12	328350
Reacquired shares	May 1-June 1	(656700-100000)= 556700	-	3	1/12	139175
Stock split	June 1-Oct 1	(556700*3)= 1670100	-	-	4/12	556700
Reissued shares	Oct 1-Dec 31	(1670100+63000)= 1733100	-	-	3/12	433275
Weighted average number of shares						1751475

b) Earning per share= Net income/Weighted average number of shares

= $3568000/1751475= $2.04 per share

c) Preferred dividend= 101000*$100*9%= $909000

Earning per share= (Net income-Preferred dividend)/Weighted average number of shares

= ($3568000-909000)/1751475= $1.52 per share

d)

Buffalo Corp
Income Statement
Income From Continuing Operations (3568000+422000)/1751475	$2.28
Loss From Discontinued Operations (422000/1751475)	-0.24
Net Income / (Loss)	$2.04