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Brief Exercise 19-12 (Algo) EPS; shares issued; shares retired [LO19-5, 19-6] McDonnell-Myer Corporation reported net income...

Brief Exercise 19-12 (Algo) EPS; shares issued; shares retired [LO19-5, 19-6]

McDonnell-Myer Corporation reported net income of $864 million. The company had 423 million common shares outstanding at January 1 and sold 18 million shares on February 28. As part of an annual share repurchase plan, 9 million shares were retired on April 30 for $26 per share.

The answer is not 2.18

Solutions

Expert Solution

The earnings per share or EPS are simply calculated by dividing the total earnings of the company for a particulate year by the number of outstanding shares of that company in that period.

But when the number of outstanding shares has changed during the year, the weighted average method to find out the EPS is used.

This is because to find the correct amount of the EPS. In a company, it is not necessary that the new shares are issued in the beginning of the year. The shares may be issued in between the year.

As the stock sales provides the resources to the company for earning after selling the stock. So the time weighting is done.

When the shares are purchased as stock, these reduced the number of shares for the calculation of EPS.

Answer:

ekkarill92 answered 2 years ago
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