Question

In: Accounting

At January 1, 2017, Bonita Company’s outstanding shares included the following. 259,000 shares of $50 par...

At January 1, 2017, Bonita Company’s outstanding shares included the following.

259,000 shares of $50 par value, 7% cumulative preferred stock
974,000 shares of $1 par value common stock

Net income for 2017 was $2,570,000. No cash dividends were declared or paid during 2017. On February 15, 2018, however, all preferred dividends in arrears were paid, together with a 5% stock dividend on common shares. There were no dividends in arrears prior to 2017.

On April 1, 2017, 454,000 shares of common stock were sold for $10 per share, and on October 1, 2017, 112,000 shares of common stock were purchased for $21 per share and held as treasury stock.

Compute earnings per share for 2017. Assume that financial statements for 2017 were issued in March 2018. (Round answer to 2 decimal places, e.g. $2.55.)

Earnings per share $_____________________

Solutions

Expert Solution

Calculation of Weighted average number of shares outstanding
Event Dates outstanding Shares outstanding Fraction of year Weighted shares
Beginning balance Jan. 1–April 1                                    974,000 3/12                  243,500
Issued shares April 1–Oct. 1                                 1,428,000 6/12                  714,000
Reacquired shares Oct. 1–Dec. 31                                 1,316,000 3/12                  329,000
Weighted average number of shares outstanding—unadjusted               1,286,500
Stock dividend, 2/15/18                        1.05
A Weighted average number of shares outstanding—adjusted               1,350,825
Net income               2,570,000
Less : Preferred dividend (259,000*50*7%)                (906,500)
B Profit available to common shareholders               1,663,500
Earnings per share for 2017 = (B/A) = (1,663,500/1,350,825) = $1.23

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