Question

For several years Orbon, Inc., has followed a policy of paying a cash dividend of $0.69 per share and having a 6% stock dividend. In the 2017 annual report, Orbon reported restated earnings per share for 2015 of $1.18.

a. Calculate the originally reported earnings per share for 2015. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Calculate the restated cash dividend per share for 2015 reported in the 2017 annual report for comparative purposes. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

In general, original eps comprises of the net profits reduced by any preferred dividends and divided by Weighted average number of shares whereas the restated or diluted eps also includes the convertible type securities.

A) Calculate the originally reported earnings per share for 2015:

= In 2017 annual report, restated eps of 2015 = $ 1.18

Rate of stock dividend given = 6%

Now,

For 2017, given eps of 2015 = $ 1.18

Going backwards, For 2016 eps shall be = ($ 1.18 x (1+6%) ) = $ 1.25

For 2015 it shall be = ($ 1.25 x ((1+6%) ) = $ 1.325 or $ 1.36

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B) Calculate the restated cash dividend per share for 2015 reported in the 2017 annual report for comparative purposes.

Restated cash dividend calculation:

= Current year dividend (D₀) = Previous year dividend (D₁) / (1 + rate)

Cash dividend of 2015 = $ 0.69 per share

Cash dividend of 2016 = ($ 0.69 / (1 + 6%) ) = $ 0.65

Cash dividend of 2017 shall be = $ 0.65 / (1 + 6%) )= $ 0.61

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