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

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.)

Please show all work

Answer 1

Solution a:

Computation of weighted average outastanding shares
	Number of shares	Stock Dividend Restatement	Stock Split Restatement	No. of months	Total Months	Weighted-average shares
Jan 1, - Jan 30 Shares outstanding	472000	1.1	3	1	12	39333
Feb 1 – Feb 29 Issued Shares	472000+ 125000 =597000	1.1	3	1	12	49750
Mar 1 – apr 31 Stock Dividend	597000+10% =656700		3	2	12	109450
May 1 – May 31 Reacquired Shares	597000 -100000 =556700		3	1	12	46392
Jun 1 – Sep 31 3-for-1 stock split	556700*3 =1670100			4	12	556700
Oct 1 – Dec 31 Reissued shares	1670100 + 63000 =1733100			3	12	433275
Total weighted average number of shares outstanding	1234900

Solution b:

Earnings per share = Net income / weighted average number of shares outstanding

= $3568000 / 1234900 = $ 2.89 per share

Solution c:

Preferred Dividend = 101000*$100*9% = $909000

Earnings per share = (Net income - Preferred dividend) / weighted average number of shares outstanding = ($3568000 - $909000 )/ 1234900 = $2.15 per share

Solution d:

Net Income	$3568000
Add: Loss from Discontinued Operations	$4,22,000
Income from continued operations	$3990000

Buffalo Corp..
Income Statement
For the Year ended Dec 31, 2018
Income from continued operations ($3990000/1234900)	$3.23
Loss from Discontinued Operations (-$422000/ 1234900)	-$0.34
Net Income ($3568000 /1234900)	$2.89