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In: Accounting

Presented below is information related to Starr Company. 1. Net Income [including a discontinued operations gain...

Presented below is information related to Starr Company.

1. Net Income [including a discontinued operations gain (net of tax) of $66,000] $221,000
2. Capital Structure
a. Cumulative 5% preferred stock, $100 par, 5,800 shares issued and outstanding $580,000
b. $10 par common stock, 74,000 shares outstanding on January 1. On April 1, 40,000 shares were issued for cash. On October 1, 16,000 shares were purchased and retired. $1,000,000
c. On January 2 of the current year, Starr purchased Oslo Corporation. One of the terms of the purchase was that if Oslo net income for the following year is $242,000 or more, 50,000 additional shares would be issued to Oslo stockholders next year. Oslo’s net income for the current year was $2,600,000.
3. Other Information
a. Average market price per share of common stock during entire year $30
b. Income tax rate 30%

1. Compute weighted average shares outstanding.

2. Compute earnings per share for the current year.

a. Basic earnings per share ____________.

b. Diluted earnings per share ________________>

Solutions

Expert Solution

Shares Outstanding Period Weighted Average Shares
1-Jan                        74,000 1      74,000
1-Apr                        40,000 0.75      30,000
1-Oct                      (16,000) 0.25      (4,000)
Weighted average shares outstanding 100,000
Numerator Denominator Earnings per Share
Basic $                  192,000        100,000 $      1.92
Diluted $                  192,000        150,000 $      1.28
Workings
Basic
Net Income $    221,000
Preferred Dividend 5800*100*5% $      29,000
$    192,000
Diluted
Weighted average shares outstanding        150,000
(100000+50000)

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