Question

The Duckworth Ltd. 20X5 financial statements include the following:

Statement of comprehensive income
Year ended 31 December 20X5
Earnings from continuing operations	$	3,196,000
Discontinued operations (net of tax)		502,000
Net earnings and comprehensive income	$	3,698,000

Statement of financial position
31 December 20X5
Bonds payable, 7%, nonconvertible			$	11,400,000
Preferred shares, no-par value, $1.04, nonconvertible, noncumulative, outstanding during year, 640,000 shares				11,400,000
Common shares, no-par value:
Outstanding 1 Jan., 35,400,000 shares	$	7,290,000
Sold and issued 1 April, 3,310,000 shares		1,540,000
Issued 30% stock dividend, 30 Sept., 11,613,000 share		1,630,000		10,460,000
Retained earnings				7,924,000

The company declared and paid preferred dividends of $34,000 during the year and had an effective tax rate of 20%.

Required:
1. Compute basic EPS. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

2. Repeat requirement 1, assuming that the preferred shares are cumulative. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

1)
Basic Earning per Share
Basic EPS = Net Income - Preferred Dividend / Weighted Average Shares Outstanding
Events	Dates Outstanding	Shares Outstanding	Restatement	Fraction of Year	Weighted Shares
Beginning balance	Jan. 1–Apr. 1	35,400,000.00	1.3	3/12	11,505,000.00
Issued shares	Apr. 1–Oct 1	38,710,000.00	1.3	6/12	25,161,500.00
Stock dividend	Oct. 1–Dec 31	50,323,000.00		3/12	12,580,750.00
	Weighted-average number of shares outstanding		49,247,250.00
Earnings from continuing operations	3,196,000
Less: Preferred Dividend =	34000
Net income available to Common stockholders	3,162,000
Earnings from continuing operations = 3162000 /49247250	$                        0.06
Discontinued operations (net of tax) = 502,000/49,247,250	$                        0.01
Net Income (EPS)	$                        0.07
2)
Earnings from continuing operations	3,196,000
Less: Preferred Dividend = (34000 + 1.04 x 640,000)	699600
Net income available to Common stockholders	2,496,400
Earnings from continuing operations = 2496400 /49247250	$                        0.05
Discontinued operations (net of tax) = 502,000/49,247,250	$                        0.01
Net Income (EPS)	$                        0.06