In: Accounting
L Company had 500,000 shares of common stock outstanding on January 1, 2021. During 2021, it had the following transactions that affected the common stock account:
Required:
Answer to Question (a)
In the given instance, Weighted average number of shares are calculated by assigning number of month shares are hold as weights.
We will multiple the number shares issued each month into number of weights to find weighted shares and finally will divide the weighted shares by 12 months to find the weighted number of shares.
1 st january we have 500000 stock
1 st february company issued 90000 shares.
1st march company issues stock split at 10%, Normally stock dividend are issued on outstanding stock at the closing of preceeding financial year . Therefore 90000 shares issued at 1 st february are not eligible for stock dividend being same are issued during the current financial year.Hence, Total stock dividend shall be 50000 shares (500000*10%)
1st june company has issued 2 shares to every shareholder who are holding one shares on first june. Therefore total shares outstanding at 1st june is 6,40,000 shares.So total shares issued on 1 st june shall be 12,80,000 shares.
Total shares held by shareholders at the end of december 31,2021 shall be 19,20,000 shares but all these shares are not held by shareholder in whole year therefore we have to find weighted average number shares to find equivalent period of holding to find earning per share.
Therefore weighted average number of shares as on december 31 are as follows:-
Weighted average no of shares = Weighted no of shares/Weights
= 16,450,000/12
= 13,70,333 shares.
Answer to Question (b)
Here net income of $ 25,00,000/- has given and asked to find earning per share.
For finding earning per share we have derive net income attributable to common stock holders by deducting preferencial divident payable for preference stock holders.
Such net income shall be used to find earning per share :-
Computation of net income attributable to common stock holders :-
Earning per share for F.Y 2021 = Net Income attributable to common stock / Weighted number of shares.
= 18,00,000.00/13,70,333.00
= $ 1.31 / share.
Answer to question (C)
Here it is given an additional information that there is a net loss of $ 260000/- from discontinued operation. Therefore we have to deduct such loss from net income before deducting preferencial dividend.
So for arriving net income attributable to common stock holders we shall deduct both net loss from discontinued operation and preference stock dividend.
Therefore, net income attribtable to common stock holders as follows:-
Earning per share for the F.Y 2021 = Net Income attributable to common stock holders / weighted average no of shares
= 15,40,000 / 13,70,833
= $ 1,12 per share.
FINAL CONCLUSION TO THE QUESTION :-