Question

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 ________________>

Answer 1

	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)