On January 1, 2021, Buffalo Corp. had 472,000 shares of commonstock outstanding. During 2021, it...

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.)

Expert Solution

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

ekkarill92 answered 3 years ago

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