Question

In: Accounting

L Company had 500,000 shares of common stock outstanding on January 1, 2021. During 2021, it...

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:

  • February 1st – issued 90,000 shares
  • March 1st – issued a 10% stock dividend
  • June 1st – issued a 2-for-1 stock split

Required:

  1. Determine the weighted-average number of shares outstanding as of December 31, 2021 (round to whole numbers).
  2. Assume that L Company had net income of $2,500,000 during 2021. In addition, it had 100,000 shares of 7%, $100 par nonconvertible, cumulative preferred stock outstanding for the entire year. Compute earnings per share for 2021, using the weighted-average shares determined in part (a).
  3. Assume the same facts in part (b), except that there was a loss from discontinued operations of $260,000 (net of tax). Compute earnings per share for 2021.

Solutions

Expert Solution

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 :-


Related Solutions

On January 1, 2021, Kingbird Corp. had 468,000 shares of common stock outstanding. During 2021, it...
On January 1, 2021, Kingbird Corp. had 468,000 shares of common stock outstanding. During 2021, it had the following transactions that affected the Common Stock account. February 1 Issued 115,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 96,000 shares of treasury stock June 1 Issued a 3-for-1 stock split October 1 Reissued 63,000 shares of treasury stock Determine the weighted-average number of shares outstanding as of December 31, 2021. The weighted-average number of shares outstanding enter...
On January 1, 2021, Sweet Corp. had 482,000 shares of common stock outstanding. During 2021, it...
On January 1, 2021, Sweet Corp. had 482,000 shares of common stock outstanding. During 2021, it had the following transactions that affected the Common Stock account. February 1 Issued 126,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 104,000 shares of treasury stock June 1 Issued a 3-for-1 stock split October 1 Reissued 61,000 shares of treasury stock Determine the weighted-average number of shares outstanding as of December 31, 2021. The weighted-average number of shares outstanding enter...
On January 1, 2021, Windsor Corp. had 465,000 shares of common stock outstanding. During 2021, it...
On January 1, 2021, Windsor Corp. had 465,000 shares of common stock outstanding. During 2021, it had the following transactions that affected the Common Stock account. February 1 Issued 126,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 102,000 shares of treasury stock June 1 Issued a 3-for-1 stock split October 1 Reissued 61,000 shares of treasury stock Determine the weighted-average number of shares outstanding as of December 31, 2021. The weighted-average number of shares outstanding enter...
On January 1, 2021, Shamrock Corp. had 459,000 shares of common stock outstanding. During 2021, it...
On January 1, 2021, Shamrock Corp. had 459,000 shares of common stock outstanding. During 2021, it had the following transactions that affected the Common Stock account. February 1 Issued 123,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 101,000 shares of treasury stock June 1 Issued a 3-for-1 stock split October 1 Reissued 57,000 shares of treasury stock Part 1 Determine the weighted-average number of shares outstanding as of December 31, 2021. The weighted-average number of shares...
On January 1, 2021, Sweet Corp. had 479,000 shares of common stock outstanding. During 2021, it...
On January 1, 2021, Sweet Corp. had 479,000 shares of common stock outstanding. During 2021, it had the following transactions that affected the Common Stock account. February 1 Issued 117,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 103,000 shares of treasury stock June 1 Issued a 3-for-1 stock split October 1 Reissued 59,000 shares of treasury stock Determine the weighted-average number of shares outstanding as of December 31, 2021. The weighted-average number of shares outstanding enter...
On January 1, 2017, Ivanhoe Ltd. had 500,000 common shares outstanding. During 2017, it had the...
On January 1, 2017, Ivanhoe Ltd. had 500,000 common shares outstanding. During 2017, it had the following transactions that affected the common share account: Feb. 1 Issued 157,000 shares. Mar. 1 Issued a 19% stock dividend. May 1 Acquired 168,000 common shares and retired them. June 1 Issued a 2-for-1 stock split. Oct. 1 Issued 71,000 shares. The company’s year end is December 31. Determine the weighted average number of shares outstanding as at December 31, 2017. Assume that Ivanhoe...
Paul Company had 100,000 shares of common stock outstanding on January 1, 2021. On September 30,...
Paul Company had 100,000 shares of common stock outstanding on January 1, 2021. On September 30, 2021, Paul sold 38,000 shares of common stock for cash. Paul also had 5,000 shares of convertible preferred stock outstanding throughout 2021. The preferred stock is $100 par, 5%, and is convertible into 3 shares of common for each shares of preferred. Paul also had 400, 7% convertible bonds outstanding throughout 2021. Each $1000 bond is convertible into 30 shares of common stock. The...
On January 1, 2019, Warren Corporation had 500,000 shares of common stock outstanding. On Apr 1,...
On January 1, 2019, Warren Corporation had 500,000 shares of common stock outstanding. On Apr 1, the corporation issued 100,000 new shares to raise additional capital. On June 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 300,000 of its own outstanding shares and retired them. Instructions Compute the weighted average number of shares to be used in computing earnings per share for 2019.
The Alford Group had 250,000 shares of common stock outstanding at January 1, 2021. The following...
The Alford Group had 250,000 shares of common stock outstanding at January 1, 2021. The following activities affected common shares during the year. There are no potential common shares outstanding.    2021 Feb. 28 Purchased 3,000 shares of treasury stock. Oct. 31 Sold the treasury shares purchased on February 28. Nov. 30 Issued 12,000 new shares. Dec. 31 Net income for 2021 is $1,494,000. 2022 Jan. 15 Declared and issued a 2-for-1 stock split. Dec. 31 Net income for 2022...
The Alford Group had 240,000 shares of common stock outstanding at January 1, 2021. The following...
The Alford Group had 240,000 shares of common stock outstanding at January 1, 2021. The following activities affected common shares during the year. There are no potential common shares outstanding. 2021 Feb. 28 Purchased 30,000 shares of treasury stock. Oct. 31 Sold the treasury shares purchased on February 28. Nov. 30 Issued 120,000 new shares. Dec. 31 Net income for 2021 is $1,495,000. 2022 Jan. 15 Declared and issued a 2-for-1 stock split. Dec. 31 Net income for 2022 is...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT