Question

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On January 1, 2020, Sandhill Ltd. had 570,000 common shares outstanding. During 2020, it had the...

On January 1, 2020, Sandhill Ltd. had 570,000 common shares outstanding. During 2020, it had the following transactions that affected the common share account:

Feb. 1 Issued 195,000 shares.
Mar. 1 Issued a 17% stock dividend.
May 1 Acquired 222,000 common shares and retired them.
June 1 Issued a 2-for-1 stock split.
Oct. 1 Issued 64,000 shares.


The company’s year end is December 31.

QUESTIONS:

A) Determine the weighted average number of shares outstanding as at December 31, 2020.

B) Assume that Sandhill earned net income of $3,227,000 during 2020. In addition, it had 100,000 of 8%, $100 par, non-convertible, non–cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2020.

Calculate earnings per share for 2020, using the weighted average number of shares determined above.

C) Assume that Sandhill earned net income of $3,227,000 during 2020. In addition, it had 100,000 of 8%, $100 par, non-convertible, cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2020.

Calculate earnings per share for 2020, using the weighted average number of shares determined above.

D) Assume that Sandhill earned net income of $3,227,000 during 2020. In addition, it had 100,000 of 8%, $100 par, non-convertible, non–cumulative preferred shares outstanding for the entire year. Because of liquidity limitations, however, the company did not declare and pay a preferred dividend in 2020. Assume that net income included a loss from discontinued operations of $405,000, net of applicable income taxes.

Calculate earnings per share for 2020.

Income from continuing operations

$___

Loss from discontinued operations

 $____

Net income

 $_____

Solutions

Expert Solution

Solution-A

Calculation of weighted average number of shares outstanding as at December 31, 2020.

Jan. 1, 2020 - opening common stock (570000*12/12) =570000

Feb. 1, 2020 - share issued (195000*11/12

= 178750

May 1, 2020 - Share acquired and retired (222000*8/12)

= (148000)

Total weighted average stock till june 1,. 2020 = 600750

June 1, 2020 - Stock split (600750*2) = 1201500

Oct. 1, 2020 - Share issued (64000*3/12) = 16000

Total weighted average stock till Dec . 1, 2020 =1217500

Solution-B

Note-Since Preference share is non cummlative, and not declared during the year, it will not be deducted from earnings for stock holders.

Earning per share= earning for common stock / weigted average outstandimg common stock

=3227000/1217500

= $ 2.65 per share

Solution -Note- Since preference share is cummlative, it would be deducted from earnings. Hence,

Earning per share = (3227000-800000)/1217500

= $ 1.99 per share

Solution-D

Note- Since earning for common stock holder should be after consideing the earning from discontinueing operation, loss from discontinued operations should be deducted from the available earnings. Therefore,

Earning per share = (3227000-405000)/1217500

= $ 2.32 per share

ekkarill92 answered 1 year ago
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