In: Accounting
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 $_____________________
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 |